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.
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If you had to lend 5k to someone would you loan it to the guy who puts his car up for collatoral, or your room mates friend Jake, who swears he’s good for it. Jake may be a good guy and fully intend to pay you back but the car is far safer collateral.
Feel free to buy the debt of the poorest countries in the world. 🤷♂️ I think you’ll find your answer.
If you borrowed more money than anyone else, you’d have more money than anyone else. You might owe it, but first you have the benefit of having that much availablento you. Having to pay into the debt doesn’t matter as much when it results in you having tremendous resources to use to invest towards recouping it in the future. It is more commitments that come with acquiring that debt
Government spending and consumer spending are quite different. Consumer spending is more for immediate needs. If you are hungry, you check your wallet or bank account if you have enough money and then buy it from the shop. There is no reason to go into debt for food.
The government has a different problem. To feed the people, it can’t just buy food. It has to build a port. In order to build a port, you need roads to be built for the port. That is a lot of upfront investment that the country has to spend before a single ship docks at the port. You can try raising taxes but that also takes time to amass all the money. So you sell bonds. The investors hope that the future road tax or toll or port fees will pay back the investment in the long run.
So why do rich countries have a lot more debt? If the consumers are well to do, they will demand more variety of food. Then you have to build airports for fresh food or border crossing.
Who do you think has more debt, you making $21/hr driving a 2001 honda civic or the guy making $800,000 a year with a $5mil home, $180k law school debt, $100k luxury truck and $80k boat?
It’s simpler than the other posters are saying. We could make it complex, but at the core, **the debt is just money**, and the higher the debt, the more money that country has created. So of course the richest countries have the most debt.
There are rich countries that don’t have a lot of debt, but they are exporting nations that really on other countries printing money for them. Someone has to create the money and buy those exports, and it makes sense the biggest economies like the USA, Japan, China are the ones to do so.
You are thinking of debt like, you don’t have money and then you borrow it from someone who already has that money to be able to buy something. That’s not at all what this is. Government “debt” is the money that government created on the spot. And think about it, how are you supposed to pay your taxes if they didn’t print that money first, before they collected the tax second? Spending = creation of money, taxes = un-creation of money, debt is the bonds (also money) they sell (created on the spot) equal to that money for the meantime.
Two possible links:
* loans can be a good idea. For instance, if you borrow $1billion to build a hospital, and then the hospital improves the citizen’s health in a way that generates more than $1billion (perhaps fewer hours/lives lost to illness/injury and thus more work & tax revenue), then the citizens benefit from the government taking this loan, and become richer overall.
* Richer countries get better interest rates (because they are more likely to pay the loan back) which means they can take more loans relatively safely.
So either loans create wealth, or wealth permits larger loans, or both, could help explain part of this pattern.
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>does that debt need paying off
Yes, and so far, the coutnries have payed all debts when they were due, and is predicted to be able to pay all the debts in the future.
And then they can take on more depts before all the old ones expire.
They might always have more debt each year, without ever failing to pay any of it back. THat might sound unsustainable, but with growth and inflation it is possible that this is sustainable. (Whether it is *actually* sustainable is another question, but it mathematically *could* be, and if the government invests wisely you’d expect that it would be).
The same way rich people can have debt – Just because they have a high paying job/ wealthy economy doesn’t mean they are wise with money or spend less than they make.
That’s a drastic oversimplification though.
The debt is how they raise money … buy selling Treasury Bills and Savings Bonds … to you.
Then when the bill or bond is due, and they need to pay it, they take your taxes and pay you with it. Congrats!
So basically the government borrows money from YOU, then pays you back with money they take from you later.
Other people have stated some of the economics behind this but it’s important to note it also kind of applies to people as well. Rich people get offered a lot more credit and can take out bigger loans, because they’re more likely to pay it back. Whereas when you’re just starting out, you have 0 debt, but also 0 dollars.
With governments, there’s a whole lot more at play, but still: not all debt is bad debt.
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