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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As others have said, running a budget deficit is not actually a big deal; a budget deficit is a single budget’s budgetary shortfall. So I’ll answer the related and more interesting question, “how can advanced economies continually increase their debt load year over year for basically forever?”
You answered your own question. It’s because they’re “advanced” economies. Let’s say you’re China, the world’s largest exporter. You look at the US balance sheet and you say, “you know, this looks like a huge credit risk. If we lend these guys money, it’s highly likely they’ll default before we ever see this money back, or at the very least they’ll have to inflate their currency so we’ll be essentially receiving pennies on the dollar, if anything at all”. Ok, fine. But then you look at your balance sheet and you see “yeah, but also 70% of our revenue comes from the US, so if we don’t give them money and they default now, then we’ll lose 70% of our economy, and that sucks”. So they do it. Over, and over, and over again. This is called “economic MAD” (MAD being a term used during the Cold War, meaning Mutually Assured Destruction; it’s why both the US and the USSR had huge stockpiles of nukes but neither ever used them, because they knew whoever fired first would get fired back on and it would destroy both of them).
Note that as of at least 2020, China in particular is doing its best to diversify its economic investments around the world, to decouple itself from the USA, for precisely the reason of reducing the possibility of economic MAD. So we’ll see what happens.
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