How do governments manage massive amounts of debt without going bankrupt or running out of money?
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It’s important to differentiate debt from deficit – this is particularly true for countries that have control over the production of their own currency. Politicians will often talk about them as though they are the same thing, but they aren’t. A nation that controls its currency can, and often does, issue more currency to meet their spending needs, and this enters the books as a deficit. This money was created, and not borrowed, so it doesn’t need to be ‘paid back’.
Where a currency-issuing country does have actual debts to pay (where they have borrowed), they pretty much can’t default on repayments – if they wish, they can always create the necessary money to meet the repayments.
So, deficits are fairly meaningless in a lot of senses. They are just a potentially big number that fiscal-spending-averse politicians use to frighten voters who don’t understand that government finances aren’t like household finances (a household can’t just type more money into their accounts to meet their commitments). As long as inflation isn’t running rampant, then the deficit isn’t too big.
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