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
I don’t think you’re understanding how government debt works. They will sell a bond with a maturity date anywhere from 1 month to 30 years usually. The longer the term the more risk it is to the investor. When a country is in bad financial shape they need to offer higher interest rates on their bonds to attract investors which makes borrowing more expensive. It’s a slippery slope and has effects on currency valuation .
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