How are countries with constant or growing deficits not bankrupt?

Question

For example, the US and Canada have yearly deficits in the billions. Technically, doesn’t this mean the country is isolvent?

How often are countries in the surplus? What would they do with the extra funds/savings?

In: Economics

Answer 1

Lets say I make 10k a year, but I want to spend 12k. I borrow 2k, with the expectation that I pay back 3k next year.

Now I still want to spend 13k next year, plus I need this extra 3k, so 15k total. But you see, I spent that 12k bribing on self improvement courses, and i got a promotion, so i now earn 12k. I borrow 4k, so next year i pay back 6k. More self improvement, another promotion, I know earn 15k, spend 14k on myself, need to borrow 5k…

So long as I keep getting promotions, I’ll always be able to pay. In fact it might be worth me staying in debt because it means i can invest more in self improvement and ultimately afford a higher quality of life, even with interest payments, than i would if i tried to minimise my expenditure to get out of debt.

Self improvement courses are investments in the economy, promotions are economic growth, and income is taxes.

It works more reliably for economies than people. And because countries can be very reliable in making payments, and have a LOT of assets, they can borrow with very low interest rates.