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National debt

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.

All nations have a same amount of national debt. There is nothing inherently wrong in a national debt unless the sum grows relatively too high. 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 in 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 as whether you can 'pay' the debt. And debts you can pay can't be all that bad.

With the definition shifting of what exactly do you mean by the national debt it them becomes easy to argue in political debate 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 insidiuous 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