How is it that countries are all 'in debt'? Billions, Trillions...to whom???

Question

It seems that every country is in debt..but to whom? How does this work?

Answer 1

I think the previous answers might get you confused if you're a neophyte.
Usually, when you hear that a country is indebted, it refers to the national debt, which means the State's debt.
When there's a budget deficit (the State spends in a year more than it earned through taxes), the State can whether raise taxes immediately or issue bonds. When bonds are issued, anyone can buy them, from individuals to pension funds, so the debt is held by private agents, including agents from other countries.
The thing is, that bonds usually run over 30 years, which means the State remains indebted for all this period, even though it can get a budget surplus during this period.
In economics, it's usually considered that States are structurally indebted, the only question is how much, as some debts are sustainable and some are not (you could hear the term "explosive" debt).
In the real world, rich countries don't have huge problems with their national debts, because if the debt rises too much, they have lots of leverage for cutbacks (the government just gets less popular :D). But developping countries can run into lots of trouble as their States are usually too small and too weak to get any leverage.

Now, there are two other kinds of "debt", which are the trade deficit and the capital account deficit, but this is a very different matter, which has more to do with international transactions.

You could have a look at Wiki if you like:
http://en.wikipedia.org/wiki/Balance_of_Payments

Hope it helped

Answer 2

Restricting the answer to government debt, probably is true that all countries are in debt. (Just currently running a fiscal or trade surplus does NOT mean there is no national debt). That's because unlike with individuals, national governments don't really have a means to save money -- a government collects taxes to spend money for the people, not to stash it away in a bank account. It's not any government's job to "save" money. Even when some government runs a fiscal surplus, they spend that money just retiring bits of their existing debt (their government bonds).

On the other hand, it's easy for a gov't to borrow money and there is usually an incentive to do so ... so that's what all governments do most of the time.

To answer the question, mostly it's the people of the country who own the debt. A government will sell bonds (creating debt), which are bought by individuals, mutual funds, and corporations, mostly from the same country issuing the debt. There are always a lot of bonds held by banks, as government bonds are a tool that central banks and the banking system use to control the supply of money. But foreigners are free to buy that debt also, and so US Treasury bonds are a popular investment for investors all over the world.

Sometimes the government itself owns its own debt. Example is Social Security. A big chunk of the US national debt is the Social Security "Trust Fund". It consists of special bonds that are issued by the government and held by the government. So one government agency considers that an "asset" and another government agency considers that a "debt".

Answer 3

Countries are in debt to whoever will buy their bonds. That includes private individuals, companies, investment groups, and even other governments.

People buy those bonds because the countries pay interest for borrowing that money. The interest is paid with a portion of the tax revenues. When the debt is due, the country can pay it off, or roll it over by paying that bond and selling a new one.

Answer 4

Not all countries are in debt. Countries like China, Germany run surpluses. In fact many Asian countries are sitting on huge amount of foreign exchange reserves China ($1 trillion..almost), India ($170 billion) others like Japan ,South Korea, Hongkong, hold close to $100 billion each.

Also, loans are given out by the World Bank (International Monetary Fund) as well as large Multinational Banks and Financial Conglomerates such as Morgan Stanley, Goldman Sachs, , Stan Chart, HSBC, Citibank, UBS, Deutesche Bank, JP Morgan, etc. As such these are privately controlled and the money that they lend can be to Public Sector Undertakings of various Governments who give sovereign guarantees for these loans. Thus the Governments borrow indirectly through these PSU resulting in Fiscal Deficit, Current Account Deficit or Capital Account Deficit, all of which constitute the 'debt' of the country.

Answer 5

That can vary from Country to country. But for the US and Western Countries, how it works is the government issues debt certificates. The main ones are Government Savings Bonds and Government Treasury Bills.

Treasury Bills are sold to banks and tend to be large sums of money for shorter periods of time.

Savings Bonds tend to be sold to the public and are usually for longer periods of time.

So the question of whom countries are in debt to is to whomever is willing to lend it to them at the interest rate they are paying. The size of debt, country stability and country currency stability will all effect the desirability of buying your bonds. So beggars can't be choosers, if you can't sell them you might have to offer higher interest rates. Typically the more you sell at home the better, but the foreign content of sales is increasing.

Answer 6

from what I have been hearing. it's from the rich people in the whole world, but the question is how did they get all that money? there r many mysterys in this world.

Answer 7

Mainly to Gary Coleman I think.