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
In: 316
That answer is gonna depend on who you ask. Classical economists would say it does matter, but as long as the debt to gdp ratio stays manageable and the government can continue to pay down their debts, they’ll be ok. But there will be a point where the debt outgrows the governments ability to pay.
Modern monetary theory would say sovereign debt doesn’t matter almost at all as long as the government has monopoly over the currency. The government can create and spend money on whatever they’d like, and inflation is a result of putting out more money than there are real resources that can be bought, and taxes exist to create demand for the currency, not to raise revenues. According to them, the deficit and debt basically only matter if people believe it matters, but these things can be waved away by creating more money.
Personally, I think no matter what happens, the common people end up stuck with the bill from deficit spending, even if they may have some temporary gains. Creating more money tends to inflate a currency, which makes savings less valuable and forces people into risky investment markets. It also creates a debt economy. The bill will come due eventually.
Latest Answers