Tuesday, July 14, 2009

Today's Scary Debt Chart

Via Henry Blodget:

The world's governments are borrowing $5 TRillion this year. $3 TRillion will be borrowed by the US.
Where will the money come from? And how will we pay it back?

Where the money comes from gets into a weird existential question about the nature of money. Basically sovereign governments print more money. This causes the value of the money to go down = inflation.
Inflation is one basic way we will "pay" the debt back. A second way is for future taxpayers to pay more taxes to service the debt and the interest. In this sense we are borrowing from ourselves and future generations. If households and companies buy more Treasury bonds, this is a way for these private entities to lend more money to the government, but it also means that these entities are spending and investing less in other things, which keeps a lid on economic growth.


Mark Sandler said...

well, he is obviously missing a point -- people rush buy for treasuries, when there are few investment opportunities in the private world, not the other way around.

Sso the point that external activity will decrease because of increase in treasuries is wrong -- it is amount of treasuries bought is increased *because* there are fewer opportunities elsewhere. It is like blaming umbrella market for causing rains...

Anonymous said...

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Tia smith
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