I cannot get my head around it, what is it? I have heard it is not like debt we go into, who are the government in debt to exactly? And what are the consequences of not paying said debt? Could another country claim our assets or something?
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It depends. When the currency is issued by a 3rd party (Eurozone by ECB), it works like a normal debt like any other business. The ability to repay the debt is determined by its ability to levy taxes, so the orthodoxy is that the currency issuer can pressure the government to raise taxes and reduce spending in order to keep the debt under control.
When the currency is issued by the government, it works more like a currency control which limits the amount of currency in circulation in order to keep the value of the currency in a certain range. When the government cannot pay its debt in its own currency (Argentina), what happens is that the investors sell its debt to recover some of the losses, and sell the currency because investing in that country in general becomes risky. Importing goods start to be difficult because people don’t buy the currency of the country to do business of that country.
It depends. When the currency is issued by a 3rd party (Eurozone by ECB), it works like a normal debt like any other business. The ability to repay the debt is determined by its ability to levy taxes, so the orthodoxy is that the currency issuer can pressure the government to raise taxes and reduce spending in order to keep the debt under control.
When the currency is issued by the government, it works more like a currency control which limits the amount of currency in circulation in order to keep the value of the currency in a certain range. When the government cannot pay its debt in its own currency (Argentina), what happens is that the investors sell its debt to recover some of the losses, and sell the currency because investing in that country in general becomes risky. Importing goods start to be difficult because people don’t buy the currency of the country to do business of that country.
The govt can sell stuff like bonds (and prob a bunch of other stuff I don’t know about) that they pay back with interest.
They’re in debt to holders of such assets. Could be individuals, corporations, other countries, etc. Whoever wants a “safe” investment vehicle for their money.
The consequence of not paying it back is a lack of faith in your bonds. Like if I buy bonds and the govt doesn’t pay me back with interest I’m not buying that again. And no, I can’t like claim I own the United States govt now.
Govt debt is a lot different than personal debt. For one, the govt can print money and simply pay it back whenever they feel like. And you may say “wait! Inflation”. And look, I didn’t say there’d be no consequences to that I said they could legally do it. If you printed money to pay your credit card bill you would go to jail. If you stop paying your mortgage the bank takes it back eventually.
The govt can sell stuff like bonds (and prob a bunch of other stuff I don’t know about) that they pay back with interest.
They’re in debt to holders of such assets. Could be individuals, corporations, other countries, etc. Whoever wants a “safe” investment vehicle for their money.
The consequence of not paying it back is a lack of faith in your bonds. Like if I buy bonds and the govt doesn’t pay me back with interest I’m not buying that again. And no, I can’t like claim I own the United States govt now.
Govt debt is a lot different than personal debt. For one, the govt can print money and simply pay it back whenever they feel like. And you may say “wait! Inflation”. And look, I didn’t say there’d be no consequences to that I said they could legally do it. If you printed money to pay your credit card bill you would go to jail. If you stop paying your mortgage the bank takes it back eventually.
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