Why are most countries in debt, who do they owe, and what are the consequences? Why do they go into debt in the first place?
In: Economics
The government of today wants to spend more than they collect in taxes, they must borrow money to cover for the shortfall.
The debt is basically borrowing from future self ( governments of the future and the people they represent).
This debt is a burden on those future governments because now they do not have the headroom to borrow as much or spend as much.
On top of not being able to spend on their people, now the future governments have to spend on paying that interest on these loans.
So, when borrowing, from the future, we must ask ourselves: what are we giving them back for this money?
If you take these debts to do things that also help the future ( large infra, dams, power grid, education, sustainability…), then they would not mind.
But if this is instead used to spend on short-lived benefits and only to help current population or buy goodwill ( benefits to seniors, spending on military, unsustainable industrialization, roads, tax breaks, giveaways,…), then this debt is bad and is basically a stolen opportunity from our future.
Some healthy amount of debt is considered okay, although economists keep debating how much exactly. That value is usually referred as a percentage of GDP. I am not an expert on this but if debt servicing is among your top-10 expenses, you are in trouble.
Latest Answers