It seems that most if not all advanced economies (US, Japan, UK to name a few) have been running budget deficits since basically the last 20 years. I understand that current debts lose value over time because of inflation and economies grow, but how can they do this for basically ever? I can’t wrap my head around the maths that makes this possible, and the markets don’t seem all that worried
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A lot of good answers here, but there’s also another factor. Government debt is money in itself (the market for US Treasuries is huge), and also backstops almost all other forms of money. Banks, for instance, are required to hold a certain amount of capital in government bonds, as collateral for their lending. So your credit card is backed by your bank, which is backed by the Federal Reserve, which is backed by US Treasury notes (and same in other countries).
A balanced budget has to have some reserve for contingencies. What could that reserve consist of? Can’t be goods, and there is only so much gold, and investments in the stock market are essentially debts owed by companies (which is fine unless the contingency is a general downturn), so you ‘invest’ by buying the debt of the largest, most stable thing around – the government. If the government does not issue debt the money supply dries up and bad things happen.
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