Government debt See also: List of countries by public debt Government debt (also known as public debt and national debt)[1][2] is the debt owed by a central government. (In the U.S. and other federal states, government debt may also refer to the debt of a state or provincial government, municipal or local government.) By contrast, the annual government deficit refers to the difference between government receipts and spending in a single year, that is, the increase of debt over a particular year. Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly canceling government debt,[3] and can result in hyperinflation if used unsparingly. Governments may be Monetarily Sovereign or monetarily non-sovereign.[4] A Monetarily Sovereign (MS) government has created the laws that have created its sovereign currency. A monetarily non-sovereign government uses a currency over which it is not sovereign. Examples of MS governments are the U.S., the UK, Canada, Japan, Australia, etc. Examples of monetarily non-sovereign governments are Greece, France, Italy, Illinois, California, Cook County and Chicago. The former use their sovereign currency. The later use a currency over which they are not sovereign. By its own laws, MS government can give itself the unlimited ability to create its sovereign currency and to give that currency any value it chooses. (Many nations intentionally have reduced the value of their currency, to stimulate exports.) Thus, and MS government never can be forced into bankruptcy or to run short of its sovereign currency. It can pay any debt of any size, so long as that debt is denominated in its sovereign currency. It neither needs to borrow nor to tax, to service debts in its sovereign currency. It does have to impose taxes, though. Firstly, to create a demand for the currency and underpin its value. Secondly, to allow it to spend without inflating the currency. Spending by the domestic private sector and the overseas sector has an effect on both debt and inflation. Government can have an strong influence on both but is never in total control of either. Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions. As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Sovereign debt usually refers to government debt that has been issued in a foreign currency. Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid. A new way to pay the National Debt, James Gillray, 1786. King George III, with William Pitt handing him another moneybag. Government and sovereign bonds By country Municipal, provincial, or state bonds
Posted on: Sat, 16 Nov 2013 15:48:00 +0000
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