So apparently pretty much every country in the world has a national debt that is ever increasing. Different elected governments try to enact savings to stall the debt growth with varying degrees of success, yet always the debt grows. Often I hear it said “we cannot afford these social changes, the national debt increase is not sustainable” etc.
So please, if you can to me how national debt works and what is too much?
In: Economics
The probables how how much is too much is not the debt itself, but rather the payments on the debt. A country like the us can have higher debt than anyone else partially because the us can borrow at the lowest interest rate, so the payments themselves are lower. Usually national debt is done via bonds where the company pays the interest rate over time and then the remaining principle amount at the end, but instead of paying it off they just reissue it and keep making the interest payments and eventually with inflation the principle amount won’t matter.
How much is too much is an open question both economically and politically. If you’re spending 20% of your yearly tax revenue on just paying off debt that could be a lot of money that could be better spent elsewhere, on the other hand maybe you’re getting a good return on whatever you used that debt for in the first place. If you have too high debt the government has to pay more to that by either. Urging elsewhere or raising taxes, neither are generally good options.
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