Can you explain like I’m five, what is the national debt, how does it exist, where does the money come from or go?
Do we just pay monthly on it, because God knows if I was to not pay on my debt, someone would hold me accountable….
Thanks.
In: Economics
US national debt is mostly made up of interagency IOUs and various bonds and securities that are sold either to the public or financial institutions. Many of the bonds and securities have set maturity dates so it’s paid out as a lump sum when redeemed at a later date, given their more or less constantly being issued there’s always a known amount of them reaching maturity.
As for where the money comes from, it comes from whoever purchases those bonds and securities, so mixture of banks, the general public, and foreign investors.
As for where it goes, it goes into the governments coffers to be spent according to the budget. Lot of it goes to service the existing debt by basically using new debt to satisfy old debt. It’s essentially a system where government perpetually kicks the can down the road.
You could liken it to opening a new credit card to pay off and close out a different credit card, but with the key difference that the interest rate is effectively ~1% and there’s an arbitrarily massive limit on these credit cards.
Latest Answers