Like how does it affect the average citizen on a day-to-day basis?
Why do we have a national debt in the first place (as presumably the richest country in the world)? Who lends us the money, and do we have to pay them back?
Also, as I understand it, we can’t really get rid of the national debt, but we can slow down the amount of spending. Why does the rate of our debt accumulation matter?
If we’re already trillions in debt, what difference would it make at this point to spend indefinitely to improve our country?
In: Economics
Debt, if you can get it cheap enough is free money, that’s why every country out there that is remotely fiscally capable has some debt. Pumping borrowed money into economy makes it grow, making it easier to pay the debt back. If economy growth rate exceeds interest rates then it’s just a money machine.
But more debt you have, higher the interest rates get until nobody is willing to lend you anymore. And obviously that is not productive if high interest rates eat all your economic growth. So no, a country can’t borrow infinite amount of money, it gets too expensive until the country defaults or drops into hyperinflation spiral and that’s an ugly business.
Certainly not the only one, but one very important indicator to keep an eye on is debt to gdp ratio. For US that is 144% which is quite high, but not highest. Japan has 254%. OECD member with lowest debt to gdp is Estonia with just 25%
A low governmental debt also functions as an emergency reserve, gives an option to borrow a lot if you need it. With high debt you have already borrowed a lot and if an expensive emergency hits, that’s just tough luck.
Latest Answers