How come the “richest countries” have the most debt

Question

The USA and Chin have the highest debt in the world but i don’t understand the concept of them being some of the wealthiest countries, does that debt need paying off? How do they get this debt? Ultimately it just doesn’t make sense to me.

In: Other

Answer 1

There are some decent comments here, but I think I can dumb it down even further for you. Here goes: US debt isn’t really debt at all.

What!? Am I high?

Here’s the thing, when a sovereign country issues or incurs debt denominated in its own currency, that debt is just a promise to print more money later. To own a sovereign currency issuer, is to have an unlimited right to print as much of the currency as you want. So the US national debt is nothing more than a promise to print a bunch of dollars out and hand them to people.

You are used to thinking of debt as it exists for people who don’t have infinity money, but the US government has infinity US dollars. This should open up a whole new way of thinking about deficits and debt.

And it gets better! Because printing currency is a vital part of the US governments core task! The higher the debt, the better the job it’s doing!

Am I taking this too far? Is it really this easy? Ok, sure, while the US government could print a quintillion dollars tomorrow with a few keystrokes, that would be a bad idea. Too much currency printing could in theory devalue the currency and create inflation. Nobody knows for sure how much debt that would take, all we really know is that it would be really fucking hard because it’s essentially never happened for a rich country with a floating currency since China was admitted to the WTO. So it would clearly take a much, much much larger budget deficit than anything the US has ever done. Even then it would really depend on the net consumption growth and supply elasticities.

Okay this has stopped being ELI5 but bottom line, the US owes most of its debt to itself, and even the debt it owes to others , it owes it to them in monopoly money. Sovereign debt is a completely different thing than personal debt. US debt is just a number to track how much money we’ve decided to print, and even there, deficit as a fraction of GDP is the only metric that matters. Even though most people talk about it just to panic about minor changes to the ratio that don’t matter.