When I have excess money I wouldn’t think of taking a loan which is much smaller than my savings. Why does a sovereign state issue sovereign bonds to borrow tens of billions dollars when it has in reserve over half a trillion dolars?
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The four obvious reasons are
1) Building credit. Having loans and consistently paying them off shows that you are a “good risk” for future loans and can secure preferred rates and terms. Just a you or I would use a credit card when we have $100 in the bank.
2) Opportunity cost & Liquidity – Sure I might have $100 in the bank right now, but I might *really really* need it tomorrow. I can take out a loan to keep my liquid cash just in case something unforeseen happens. Maybe I can invest the $100 and get a greater return on the investment than the interest in the loan. The same way rich people take out loans despite being flush with case.
3) International Relationships – It builds relationships with foreign countries. Short answer, there is something called the Benjamin Franklin affect which is when you *like someone* you do favors for. Benjamin Franklin would famous never bring a pencil to meetings and would ask someone in the room to lend him a pencil. It’s weird, but he noticed people who lent him pencils in the past *liked and trusted* him more in the future. By having a loan with a foreign power, you actually build trust and relationships with that nation.
4) Politics. The amount of money you keep in reserves might be legally locked, like in order to spend $x from a treasure you need senate approval or a special law passed because the law says you *must keep $y* in the treasure at all times. Similar laws are looser or non-existent for taking on certain forms of debt. Long story short, it’s easier to ask for forgiveness than permission in some cases.
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