I keep reading how in the UK it’s poor economic literacy for Rishi Sunak to use personal borrowing as an analogy for a country borrowing money. I’ve tried to read about it but I just get confused on the details, economics is just not a strong point. The credit card maxed out is easy to relate to just with bigger numbers, but I understand things don’t translate when going from small to big but I just can’t get my head around why in this instance.
In: Economics
Because you can’t re-possess a country.
Whatever you, *personally*, could do to secure or de-risk a loan — mortgage a house, buy a car, use your personal credit rating, get your parents to co-sign — is irrelevant at the nation-state level. If Country X defaults on their loan, Country Y doesn’t get to take over. Country X just keeps right on existing and making stuff and selling it and taxing their people and printing its money.
There’s an old joke here that offers useful perspective:
If you owe the bank a million dollars, *you* have a problem.
If you owe the bank a **billion** dollars, the *bank* has a problem.
Latest Answers