How do countrys get in so much debt and why do they keep expanding on ther debt?


How do countrys get in so much debt and why do they keep expanding on ther debt?

In: 9

It’s better for people to have low and steady inflation but this needs more currency to be in circulation.

The government then creates money by spending it into existence and removes (taxes) less than it spent.

The difference is the deficit and it’s the extra money left for the private sector (i.e. me and you).

If they can get loans at low interest rates, it’s actually good policy to borrow IF they invest it in infrastructure and other projects that will pay off in the long run. Unfortunately they often invest it unwisely, there’s little or no return on the investment, and when a financial crisis hits they may be forced to make severe budget cuts in order to get bailed out by the World Bank or richer countries that don’t want to see them completely fall apart. Being in debt to richer countries can also make them beholden to those countries politically, whether they like it or not.

It is easier to get money to get re-elected (bribes/donations) if you spend money on companies. So you buy military gear and give huge tax cuts and build interstate roads. But then, you need to get elected again, so you repeat. Eventually, you start spending more and more on this that are not really trackable like military and tax cuts and you can’t cover the cost of running the government, but you get re-elected. So you borrow and just keep repeating. You pocket the bribes. You don’t care if the country is broke because you are rich.

For anyone interested about this question I would direct you to play Victoria 3. It answers your question quite well.

If you look at a country having a treasury (which they can gather their surplus money) and a maximum viable loan size before they would be forced to default. An important metric to a country is the GDP of said country. It shows you how large the market of a country is. Consequently it shows how strong the economy of a country if you relate it to how big the loans of said country are.

A country should want to increase its GDP as much as possible. They can take quite a few policies or even direct action (like building infrastructure or founding state run companies) to increase it. In this situation money sitting in the treasury is money not spent in increasing GDP. Except emergency situations and some specific reasons a government would strive to have an as little as possible surplus in their treasury. They will even go a step further and even borrow money to grow their GDP faster. As long as their GDP increase outpaces loan interest then they would be increasing their GDP quite fast with little to no adverse effects. Now that is under ideal conditions. Reality is a bitch and won’t let things go your way. This makes such economic expansion quite risky and the source of the woes of many countries these days.

A good advice would be to every few years or decades clear out your debt so your market can actually stabilize. If your market is constantly expanding , it is quite hard to notice and solve problems that might be plaguing it. A good example would be the housing market bubble in China.

Because money is made up. It isn’t real debt, as it will never be paid back.

The other answers are correct. Money comes into existence because governments decide that it should. Likewise, the debt is ignored because it keeps the game going.

99% of the time, it works. But it breaks down in times of crisis. Hence why we’re experiencing economic turmoil.