Why is the World in debt, how do we pay it off, and why should we care?


Why is the World in debt, how do we pay it off, and why should we care?

In: 69

From what I understand, countries invest money to make profit out of it. Most countries could pay it off if they wanted to, but won’t because those investments are more profitable than not having them. So basically, we shouldn’t care about it really

Countries borrow money from investors to fund government expenditures greater than they take in for taxes. It gets paid off by retiring bonds when they mature. If more bonds are issues than mature, the debt grows. If fewer bonds are issued than mature, the debt declines. Governments’ ability to spend more than they take in can be crucial, as times of tax collection reductions correspond with times of needed government spending — times like a recession where stimulus is needed to counter unemployed workers’ loss of paychecks; public emergencies like COVID response and vaccination programs; war

The world is in debt to itself. That is, parts of the world are in debt to other parts. And that debt is valuable for both sides.

For example, a government is in debt to people who have bought government bonds. The bond-holders benefit because they give the government some X dollars now, but get X + Y dollars later, with interest. The government benefits because it can use the money it raised from selling the bonds today to invest in developing the country, which will hopefully result in more economic growth and increase tax incomes to pay off the X + Y dollars that it needs to pay the bond-holders back in a 5/10/20 years. As long as this relationship holds (the government can invest the money and successfully generate more income each year than they need to pay out for the borrowed money, and the bond-holders get their payments when they are expected), then there’s no problem with the debt at all.

Debt is money. Money is created when a loan is made, and money is destroyed when the loan is paid off. If there is no debt, there is no money.

I owe you 100 bucks, you owe Dave 100 bucks, and Dave owes me 100 bucks. It looks like there’s 300 dollars of debt in the world, but we’re really all just at net 0. In reality the numbers don’t quite line up exactly even like this. There’s still definitely countries that owe more or less somewhere, but it demonstrates how misleading debt numbers can look.

By investing in each other’s countries, we can have buffers with each other where we have more or less money available based on our own individual economies. We can also create favor between countries by having regular trade agreements. There’s also an economic incentive to not have trade disputes or even wars amongst ourselves. No one is paying debt to a country they’re currently at war with.

Obviously, it’s an oversimplification, but it’s ELI5.