Why do governments get into debt?

Why does it seem like all governments borrow money and get into debt?
Why does a country have to get into debt? Should they not be saving a bit of money for if they ever need it?

And then taxpayers are stuck paying even more money, to pay back all the interest on the debt. I am not sure, it just seems like a scam to me...

I know the supposed argument is that the government can "invest" that money in ways that will get a higher rate of return than the interest payments it takes to maintain the debt, but is that really what is actually going on? How many governments actually do this with all that borrowed money?

Seems to me, whatever theoretic potential benefits there may be to borrowing money are more than outweighed by the potential for misuse and debt problems.

 

Politically, it is easier for many governments to borrow than to raise taxes to meet revenue requirements. It is also relatively cheap since governments only need to pay interest on the debt, at least until creditors refuse to roll the debt over, which happens periodically and usually forces the existing government from power, thus granting the politicians who engineered the situation immunity from blame for the economic calamity that follows by blaming the whole thing on the newly elected opposition, which allows them to return to power in future elections as champions of fiscal responsibility.

There is no downside for politicians who saddle their nation with massive debt. At least in nations where there is no such thing as memory, which is most of the world.

 

As long as debt is manageable it's perfectly okay to use it.

 

Why? Why should any country borrow money if they do not have to? What is wrong with actually saving a little money?

When are these politicians planning on paying the money back?

 

The difference between macro economics and microeconomics is profound. Debt is not only inevitable but necessary. It stimulates trade, provides jobs and growth and actually provides for safer relations between nations (it would be stupid to go to conflict with a nation that owes you money). Finding the balance between too much debt and not enough debt is the problem as we know, politics, greed and the uninformed (read tea party) conspire to muddy the process.

 

Of course government should save money, but that's different from managing debt.

 

The same reason individuals do - wanting more stuff than you have the resources to pay for.

 

Not for governments. The only time they should ever have to borrow money is in an emergency, such as a huge war.
Or for some poorer countries that are trying to develop infrastructure for new industry or build hydroelectric dams. Although this has not worked to well for most countries in Africa. The leaders were too corrupt and just ran off with the money, leaving the country in debt.

You actually think it is good for governments to have debt?!?

 

Public debt is one of the mechanisms used since the creation of the federal reserve system to put cash into or take it out of the economy. A portion of our debt--the intragovernmental holdings which I think run around $3-$4T of our stated debt represent future obligations moreso than traditional debt.

Since the value of currency tends to lose money over time, the cost of doing something today and paying for it in 20 years as opposed to waiting 20 years and saving up the money makes it cheaper. A simple example might be it was cheaper to pay someone to do something 20 years ago then it would be to pay them to do it today but we don't have to pay them until today. This is highly relevant to capital improvements or tangible goods like buildings, dams, etc. It becomes more highly questionable when it comes to things like welfare spending since we are not really getting anything tangible in return for it and it will take money away from what we have to spend for new things 10 or 20 years down the road.

The reality, however, it that we are not paying anything off ever any more. We are simply refinancing it and making interest only payments which puts us on a collision course with projected outlays on social programs as debt service plus social spending will eat up so much of our budget in the future, we have very little way to manage things like disasters, wars, etc, without printing so much money that the dollar becomes even more worthless. It is a matter of finding a good balance.

 

debt creates jobs by increasing the flow of money in the economy and creating a healthy financial industry (making money off money). Issues arise when this money is not used or "payed forward" as has been happening since the Reagan administration. The economy cannot expand without some debt. We do not fund welfare with debt, we fund it with taxation in one form or another unless Congress reallocates these funds on their own. Welfare is the safety net for the poorest of our society and allows a minimum of inclusion by this demographic, all of the money going back into the economy in the form of food, rent and health care, the amount of fraud in welfare is less than 5% despite the GOP disclaimers, I doubt any corporation would complain about such a % in their books. It is the nature of capitalism to venture it's capital investing in the future, so funds like the Social Security trust are virtually empty as they are loaned out to safe low interest enterprises. Our current debt, not to beat a dead horse, is mostly from 2 unfunded wars, and unfunded prescription bill and loan guarantees to financial institutions from all over the world as a result of an unregulated banking industry. Free trade is an unrealizable pipe dream of ideologues having no basis in fact. The system we use today was initiated by a 34 year old genius under Geo Washington in 1792, developed in 45 days. Yes there are flaws.

 

This is a logical fallacy. Lenders take expected inflation rates into account before they lend money. If they expect inflation, they will not lend unless higher interest rates are offered.

I cannot believe you actually believe this. I do not think basing the economy on debt is healthy. Borrowing certainly has its functional purposes, by why would anyone want to borrow unnecessarily? The only time borrowing is ever good is either when it is as an investment, or when a family is buying their house.

 

Anders - I don't see anyone suggesting that an economy should be based on debt. It's like debt is just another economic tool to be used prudently.

 

It is not a logical fallacy. Those who invest in government bonds are less interested in maximizing their returns and more interested in minimizing their risks. In addition, because of the sale on the open market, they provide a tool to safely park money for a period of time even if the purchaser otherwise would prefer to be in higher yielding investments. Your long-term holders are going to be more likely to be mutual funds, trusts and institutional investors who want to be able to rely on the fixed yields as part of their investment strategies and foreign concerns who use dollar-backed bonds as a hedge against fluctuations in their currency at home (i.e. China)

 

So you think it is a good idea to effectively create a tax on savings?

It is not being used prudently. Unless the government has some place to actually invest this money, that will yield a much higher rate of return. And even if that were the case, the government should still avoid debt if it has the means to pay for it with regular tax revenues.

Borrowing large amounts of money creates a risk, and that risk has to be justified by a higher rate of return.

 

No, I think very little Washington does is a good idea, but that does not change the reality that people who invest in government bonds are more interested in fixed dividends or security for some period of time than maximum profits.

 

Agreed.. Unfortunately, we're past the point of this debt being manageable, hence the dangerous measures like quantitative easing.

 

I don't think they plan on paying it back.. I think they plan to get their grubby hands on as much gold, land, weapons etc. for when it does.

This would explain why the fed reserve keep trying to convince people that gold is useless and worthless and they discourage it, while at the same time snatching up all they can.

To answer your question, it's the same as any debt usually is.. Spending beyond our means.

They waste trillions to give away to their corporate buddies, they bail out banks who in turn further damage the economy, they give subsidies to their corporate pals, not to mention the trillions wasted on pointless wars, including exorbitant prices for no bid "reconstruction". They are spending loads on archiving people's twitter messages and such as well. All these cameras, drones etc. are all unnecessary. But they buy them because the manufacturers "lobby" (bribe) for it.

 

Because people want free goodies from government, but they don't want to pay the taxes for it. It's as simple as that. Politically, there are many vote-getting benefits from dishing out cash. Saving money in the piggy bank for a rainy day does not gain you favor with voters. It simply doesn't.

 

There is no intent to pay the money back, and as long as government can control the rates of increase of the cost of living, and devaluation of our fiat currency, providing us with the appearance of growth, we the people who work and produce while paying taxes will continue to accept the illusion of progress while the costs of supporting those at the bottom grows causing them to demand more socialistic government, and the wealth of those at the top increases, giving them greater controls over our governance.

 

Short term gain, long term pain. Debt can create jobs in the short term, but in the long term, it destroys more jobs than it ever created. Remember every dollar you hand out in 'new jobs' will have to paid back with interest.

Of course the economy can expand without debt. What a crazy concept. The US economy expanded far more during the 1800s when we had a tiny fraction of the debt we do today.

Everything the government does is funded with debt, if it can't be done without borrowing. I don't care what the fraud level is in welfare. Welfare is a horrible economically destructive system, and it needs eliminated. You pay people to not work, and then are shocked we have so many people not working. How idiotic.

And further, they are not a benefit to society. Merely spending cash, does not help the economy. What helps the economy, is more people producing in the economy. People on welfare who do not work, are merely leaches on society, consuming wealth, and producing nothing.

Social Security is not loaned out to safe low interest enterprises. It was given to the Federal Government, which spent it, and the money is gone.

And no, it is not 'mostly from 2 unfunded wars'. Or the unfunded prescription bill. The total cost of both wars was under $1 Trillion as of 2010. So $16 Trillion in debt, is due to $1 Trillion in military funding? Really? Come on dude... this is 4th grader level math here.

And lastly, the banking industry is not unregulated. Not by the wildest of imaginations. Our banking industry is one of the most highly regulated in the whole freakin world. You don't know what you are talking about. In fact, it is exactly because it was regulated so much, that it crash. Canada is widely regarded one of the most free, least regulated banking system in 1st world countries, and it didn't have the crash we did. In fact, it didn't have the crash we did in the 1930s either. Regulation never helps. It always makes things worse, and our banking crisis is just another example.

 

The 16 trillion in debt is from loan guarantees as a result of massive fraud in the banking industry and the war debt is closer to 3 trillion, the prescription debt 1.5 trillion. As of now, the debt is shrinking faster than ever before in our history. Welfare is under 500 million and as I said most goes back into the economy. Until we get back Glass-Steagal our bank regulations will continue to favor the massive fraud we saw in the early 2000's. Your pining for the "1800's" shows your total lack if historical knowledge, perhaps you should read "The Concrete Jungle" or any history book of that era, called the "Guilted Age"-you know where children worked as slaves, women were locked in sweatshops, food was poisoned, train travel was death defying, 70% of all elderly live in poverty, the mortality rate for men was 52 years, and the infrastructure was rivers and canals. Going into debt after WWII and Korea we built the largest road system in the world and slingshotted our economy to a vast scale that still amazes today. (an)delusion, there is a huge difference between macro economics and micro economics (i.e.. your personal economics), macro economics is the system we use not for personal budgets but for the expressed purpose of expanding the economy to create new and better opportunities for the constituents of our nation (us) and debt is supposed to be used as a stimulus to this effect. Using war as a stimulus, corporate welfare as a debt, or simple fraud in our banking system is not good macro economics.

 

Pretty much nothing of what you said is remotely true. $16 Trillion is not even remotely the result of massive fraud. It's the result of government spending more than it collects in tax revenue, period.

The debt is not shrinking at all, let alone faster than before in our history.

Welfare.... *IS* under 500 Million...... because the entire population of the US is only 309 Million. Nevertheless, the number of people collecting government assistance is at record highs.

Glass-Steagal had nothing to do with fraud, and had *NOTHING* to do with the sub-prime crash, and *WOULD NOT* have prevented a single bank from crashing. In fact the majority of banks that crashed, would not have been affected by Glass-Steagal if it had still been enforced. Complete and utter non-sense being spewed there.

The road system was not the primary driver of economic growth. Our economy grew more prior to WW1 and WW2, than it has since.

Everything else you say is opinion hearsay. Moving on.

 

The OP title asks "Why do governments get into debt?"

The most simple answer to that question is, 'by spending money they do not have', but in reality that only answers the question of "how" debt is created in general. The real answer to 'why' is more likely answered by asking "How do politicians get elected or re-elected?"

Debt occurs when spending exceeds the means available, and the additional spending is a result of borrowing.

Debt grows larger when spending continues to exceed the available means.

By allowing, although more actually devaluing our fiat currency resulting in higher wage demands and higher prices, which also increase the collected tax revenues and exhibit the illusion of economic growth by an increasing GDP, debt can be promoted relative to a percentage of the GDP making government debt more acceptable and manageable based on the fact that the money which 'would' be used to repay the debt has less value than the money by which it was created, with the addition of manipulating interest rates.

Most voters are more motivated by the immediate rewards relative to who they choose to cast their vote in favor of, and are kept content by recognition of the rewards available in the present, regardless of how they are obtained with little, if any, attention to the costs being put off, hopefully, into the distant future.

 

The Federal debt, currently just shy of $17 trillion is a result of the Federal government spending beyond the means available through borrowing. The debt cannot be attributed to any individual budget item, although a better case of its cause might be made if based upon some of the new items added to the budget beginning in the early 20th century.

The last time a debt reduction occurred was during the Eisenhower administration.

While welfare spending does go back into the economy, it first is taken out of the economy or borrowed, adding to the debt. Welfare spending simply redistributes spending of money which would have otherwise have been spent or could have been invested in ways creating jobs. In addition welfare spending creates an additional budget burden, which only increases the need to borrow to pay the bills of the total budget.

Welfare is under 500 million what? Are you talking about persons?

Debt increased greatly due to WWII and the Korean war (conflict?), and while much was accomplished after the wars, it was a period of time where great productivity occurred and the debt reduced.

Much of the illusion of progress is a result of diminishing the value of our currency resulting in price and wage increases, which allow for the government to claim economic growth based on an increasing GDP, which keeps the debt to GDP ratio looking more acceptable, which currently it is beginning to look like they are not doing a very good job of requiring wage increases along with price increases.

 

Governments go into debt because that is what politicians motivated to do.

Politicians:

1. Gain more votes than they lose, when the give money away
2. Lose more votes than they gain, when they cut spending
3. Lose more votes than they gain, when they raise taxes
4. Don't expect to stay in office long enough for the house of cards to collapse
5. Have succeeded in blaming the other party (in the US, Democrats spend too much, Republicans won't raise taxes)