What is National Debt?

The U.S. National Debt: What is it, where did it come from, and how does it work?

• I am not from USA. I read few articles about the US National debt but still can't get the sense of it. Could you explain it in simple words? I know that it is http://www.brillig.com/debt_clock/. I can't understand following things: What sort of debt is it? Was it given in US Dollars? If yes, couldn't US gov't just print them? What does it mean that debt is increasing? US gov't getting more money? USA is one of the wealthiest states, why does it have huge debt? Who gave this debt to US? why don't they claim it? and what happens if they claim at one day? I am asking it because most of my savings are in USD and I would like to understand the mechanics behind this currency and possibly convert to euro. Thanks!

• Answer:

  It is in dollars, but US government can not "print" dollars. That's prerogative of the Federal Reserve, which is formally an independent institution. They sometimes do something that amounts to "printing money" - heard about "quantitative easing"? That's it. But US Treasury can't do that. To fund whatever US Govt needs money for, it can get money in two ways: collect taxes or sell bonds (i.e. take loans). Since most of the budgets recently run a deficit, that means US Govt collects less taxes than it spends. The difference is covered with loans, or bonds. So the debt is the sum of all government bonds held by individuals or foreign nations. As many of the lottery/casino winners have learned, the key to financial soundness is to have more income than spending. If you spend more than you got, it doesn't matter how much you've got - you'll end up broke. US Government, for political reasons, routinely http://en.wikipedia.org/wiki/United_States_federal_budget - because for politicians, spending gets them elected, while austerity gets them hated. Thus US debt is growing. Private people and foreign government gave those loans to US government. They do it because they consider it relatively safe investment and they get interest on it - just as you would do if you have savings account. Your savings account is a loan to a bank and earns you interest. US Government bond is a loan to the government and earns them interest. In fact, most of the bonds more like CD (certificate of deposit) than savings account, since they are given for a fixed amount of time - 5, 10, 20, etc. years. There are shorter and longer term bonds, but in any case you can not demand payment before the term (though you can sell the bond and recover the money, but somebody then needs to buy it from you). Since most of the people trust that US Government is not going under any time soon, since, as you noted, US is wealthy, they are content with investing their money and getting the interest. The size of the debt is not dangerous until there's doubt that the debtor can repay - and the fear is that we approaching this threshold. It's like somebody taking a mortgage - if you have good income, you can take a big mortgage, but the bank will (or supposed to, at least :) related the mortgage size with your repayment ability. So far US repayment ability was found adequate by people, but if we abuse it, it may change and then US is up for the tough times - just as if someone stops paying the mortgage. In this case, both sides lose - the investors lose their investment or at least see it diminish and the US loses its credibility and thus ability to take more loans. Nobody wants it happen, so politicians from all countries try to work together to prevent it. We'll see how good they manage to do it.