I saw this today:
“The United States federal debt is forecasted to grow to a record 202% of the gross domestic product by 2051, the Congressional Budget Office reported on Thursday, reflecting healthcare and debt services cost growth. The national debt for 2021 is estimated at 102%.”
So I’m curious, if the U.S. is in so much dept (I think a lot of countries are?) How doesn’t it run out of money?
In: Economics
A nation’s debt is not like a person’s debt. Every dollar that exists in every American’s pocket is “US debt” and if we ever made the national debt go to zero dollars for some fool reason, we wouldn’t have an economy any more.
National “debt” is used in this context in an accounting sense. It confuses people in the same way they get confused about the term “fitness” in an evolutionary sense. Debt is bad when you owe somebody money, but debt is not inherently bad when a country owes it’s citizens money in it’s own currency.
To understand what it would be like to control a country’s debt, imagine inventing your own currency. We’ll call it “StockCuriousbucks.” You could pay your kids “StockCuriousbucks” to do chores, by writing “1 StockCuriousBuck” on a piece of paper and handing it to them. You could then demand that your kids give you 5 “StockCuriousBucks” a week or else they’re grounded. In this way, you would make your kids do chores. If your kid did 100 chores, you would be “100 StockCuriousBucks” in debt, but this doesn’t cost you anything.
If you give out too many “StockCuriousBucks,” you can reduce their value. For example, if you give your son 1 StockCuriousBuck to wash the car on Monday, and your daughter 10 StockCuriousBucks to wash the car on Tuesday, your son will probably be mad. So it is in your best interest to keep your StockCuriousBuck debt growth steady, to maximize your ability to get your kids to do chores.
That’s all the government really cares about. If they print so much money that it demotivates the population because of all the inflation, that’s bad. If they print so little money that nobody can get their hands on it and activate their productivity, that’s also bad. So the debt rate is just trying to find the optimal number. The only way we’d “go bankrupt” is if we made dollars completely worthless (like Zimbabwe bucks) or we went too far the other way and experienced hyper-deflation (which happened in ancient times with gold-backed currency but doesn’t really happen in the modern age.)
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