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
Short answer? You’re gonna get old, and a country is not.
Eventually, you will be forced to retire. You won’t be able to work any more, and you will need to live either off savings, or some sort of social income. In either case, you don’t want to still be paying off your debts, because you need the resources you already have to live comfortably. People, in other words, should ideally always trend towards having zero debts.
Countries don’t have this problem. They don’t get old and decrepit (in the same way, at least). They don’t retire. They just…endure. In the case that they do eventually die and fall apart, whatever comes next probably won’t recognize your debts anyway. They will just vanish with the government that racked them up, and the people who are out the money just lose their investment.
Therefore, countries can 100% reasonably assume they are immortal for the sake of accumulating debt. They don’t need to pay off the principle because they never actually need to be debt free for any reason. They just need to keep paying the interest, as it were.
This is considerably less irresponsible than it sounds because of the absurdly low interest rates people are willing to give governments. Most countries sell treasury bonds, which are a promise to pay back the holder of the bond some larger amount of money in ten years in return for a smaller payment right now. The effective interest rates on these loans are, like, 1% or less. If you could buy a house on a 1% interest loan, you would do so *instantly,* without hesitation, because flipping it for more than the loan cost would be trivially easy. And people loan governments money for even *less* than that. Not taking the deal would actually be insane.
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