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National debt is usually considered the sum total of all the money
that the government owes to people, companies or institutions from which it borrowed money.
National debt consists of two parts:
- External debt
- Internal debt
National debt is not always seen as a negative thing. Developing countries need money for development. Even developed
countries believe in debt for further development. The factor to be considered is the ability to repay the debt so that the debt
does not become an ever increasing burden.
National debt can be used to great political advantage depending on how you count it up, and how you account for paying it.
There are also many different ways to calculate a national debt.
Because of national debt, some percentage of personal income taxes collected will always be spent on nothing more useful or productive than
paying interest on the debt.
Government savings bonds are part of the national debt, as are loans from banks. But it is also made up of unfunded liabilities like
pension plan payments and by some measures, Social Security. Bonds
sold for infrastructure projects are also part of the national debt.
Some economists, but not all, include sums related to bills the government must
pay for goods and services it has
contracted for in the current fiscal year.
One way to calculate national debt is an absolute number. This means just summing up all debts owned to all parties, and not
relating the sum to anything else, like gross domestic
product.
Another way is by the amount payable in any given year. As a down-home example, if you owe $50,000 on a mortgage that is payable over 30 years -- is your debt $50,000? Is it the $50,000 plus the
interest? Or is it the actual amount you pay this year and not the whole amount? Your answer determines whether you can 'pay' the
debt. And debts you can pay can't be all that bad.
With the definition shifting of what is exactly meant by the national debt, it becomes easy to argue in political debates the
way that suits your purpose.
There are different ways to lower, or pay off, the national debt.
One is through increased tax revenues. Another is to not incur new debt, and use current revenues to pay off the bonds sold
and the loans taken.
The most insidious and destructive way is through inflation -- which is
nothing more than the government printing money. In most nations the central
bank is an independent entity of the government, which has the sole right to issue new currency, and hence this way is not an option.
National Debt can be held by the citizens of the country, or by institutions
outside of the country. Unlike the debt of a corporation though, a holder of
the debts owed by governments can't force the government into bankruptcy to pay
the debt.
See Also
U.S. national debt
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