In this context, "public debt" refers to the amount that a country owes its creditors. They might be private citizens, corporations, or even foreign governments. "Public debt" and "sovereign debt" are often used interchangeably but have distinct meanings.

The national debt is the only type of public debt typically discussed. The obligations of individual states, provinces, and cities are sometimes included in the national total, at least in certain nations. Therefore, it is essential to ensure that the same definitions are used when comparing the public debt of different countries.

Whatever you choose to call it, it's the sum of successive government spending shortfalls. It's the inevitable consequence of years of excessive spending by government officials. Both the deficit and the debt of a country are interconnected.

Gross External Debt vs. Public Debt

The national debt should not be equated with the total external debt. That's what businesses and the government owe their international investors. External debt is affected by public debt, although the two are not the same thing.

In the event of a hike in interest rates on the national debt, the cost of carrying any amount of public or private debt will increase. That's why most companies lobby for governments to maintain debt levels within manageable limits.

When Is Public Debt A Good Thing?

Public debt is a viable option for governments to boost their economies in the short term. Foreign investors can safely support the economic development of a country by purchasing its public debt in the form of bonds.

When compared to FDI from outside, this is a considerably safer option. This occurs when investors from outside the nation acquire at least a 10% stake in a company, business, or piece of property located within the country.

There is a correlation between national debt and rising living standards. It enables the government to expand infrastructures like roads and bridges, enhance education and job training programs, and fund social safety nets like pensions.

When Does Government Debt Pose a Problem?

When governments see the benefits, they often pay too much debt to maintain popularity. Federal and state governments can raise expenditures without a corresponding rise in tax revenue by increasing the national debt.

Investors commonly use debt-to-gross domestic product ratios as a proxy for national risk. The ability of a country to repay its debt is measured by looking at the debt as a percentage of gross domestic product.

Investors typically push for a higher interest rate when debt levels are too high. They demand a higher payoff for taking on more danger. The country's bond rating might drop if it continues spending at the current rate. A higher value means a higher probability of a debt default by the government.

U.S. Public Debt

The Bureau of the Fiscal Service under the United States Department of the Treasury oversees the country's debt. Public debt is calculated independently from government borrowing. The public debt and the government debt together constitute the national debt. Buying savings bonds or Treasury Inflation-Protected Securities will make you a proud owner of the nation's debt.

The public's total debt in 2021 was above $22 trillion. There have been numerous significant points in the history of the national debt. For instance, it increased significantly from October 2019 to December 2021. That's almost $5 trillion in less than two and a half years.

The national debt in 2021 was over 125% of GDP, far greater than the 70% threshold often cited as unsustainable. 25 That may prompt holders of U.S. debt to demand higher interest rates. Japan is the largest non-U.S. holder of U.S. debt, with China in second place.

Since both nations rely heavily on exports to the United States, they both benefit from the large amounts of U.S. dollars they get as payment. They put the money into relatively risk-free Treasury bills.

How Can A Government-Run Deficit Cause Debt?

When tax revenues fall short of projected expenditures, a deficit results as a last resort; if the government cannot reduce its cost, it will resort to borrowing funds from private investors. To borrow money means to incur a financial obligation that must be paid back at some point.

How Is The Public Debt Figured Out?

Rapidly assess the size of the national debt by summing the budget deficits for the period of interest. Some analysts prefer to tally up all liability categories individually to account for specifics like repaying debt costs. Debt securities, pension funds, and other payables fall into this category.