Why does the economy need to continue to grow, especially in countries such as Japan where population is declining?
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Debt is a large driver behind the endless quest for growth. If I am a country, and my economy has grown by 3% every year I might leverage that to get loan.
At first, I would only pay the interest on the loan. So if I got a loan for $100 dollars and it had $3 in interest, I would pay $3 and still have $100 in loan left. This means that next year, I would have to pay $3 again.
But my economy grew! So now, I’ll pay a little more than $3 dollars, and next year I’ll hopefully be able to pay even more and start reducing the principal by greater and greater margins. It will start going down, $99, $98, at an ever faster rate.
But what happens if my economy shrinks? The opposite happens. The loan gets bigger every year, and I have less ability to pay.
Modern countries are leveraged like this, and it typically isn’t a bad thing. Because they can pay off their loans with future growth, they can afford to use them to inject cash where it is needed. This can protect citizens in a crash, or fund new investment that drives growth.
But that debt requires those countries to grow, and countries took that debt expecting future growth.
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