4 ms·

Why does government debt equal private assets? and another question: why does a huge thing like a country need debt at all, shouldn't it (on average) be debt f

by nodata 15y ago

Why does government debt equal private assets? and another question: why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free?

dexen 15y ago
> Why does government debt equal private assets? Not that I fully agree with his assertion, but: Gov't debt usually takes form of `bonds'. Such bonds are issued for fixed terms and traded on free market. Both private and institutional investors (including other countries) invest in bonds, thus some of gov't debt will normally be in hands of private investors. Government bonds are considered highly secure and reliable means of investment, if somewhat low-yield. That allows the issuing country to rely on bonds for matching income to expenditures any time it needs to, at rather low cost. Should a country declare bankruptcy, or just near it, this instrument is much harder to use for the govt. Consider having a look at http://en.wikipedia.org/wiki/The_ascent_of_money http://en.wikipedia.org/wiki/The_ascent_of_money which covers the topic pretty well.
tobylane 15y ago
Government debt is apparently a good thing, it encourages internal private (businesses of that country) growth. I can't find more about it, it is something worth understanding properly.
nhaehnle 15y ago
> why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free? Axiomatically, if you sum up over all worldwide assets and liabilities, they sum to zero. That is a fact that simply follows from accounting. So the world as a whole is (net) debt free (until we start trading with extraterrestrials, then things might change). The US probably is roughly net debt free on average, summing over all domestic private and government assets and liabilities. I don't have time to run the numbers right now. Certainly, even if the US is not debt free on average, its net debt towards foreigners is much less than the government debt, and also less than the sum of government debt held by foreigners. If people just stopped looking only on one side of the coin, they would realize that and chill out over the government debt.
- justincormack 15y ago
  The fact that net debt is zero does not make people or countries creditworthy and able to pay.
- stayjin 15y ago
  It is not that simple. Have you ever wandered why counties do not have to issue balance sheets at the end of every fiscal year( or at least before every election) ? Do you understand how easy it would be to judge how a government performed by comparing two of these? And ask all the right questions, exactly as MS investors do with the "developers, developers, developers" CEO?
  - justincormack 15y ago
    Thats just because they dont want to share the information transparently. New Zealand started issuing a real balance sheet quite some time back, and it is very interesting. It is hard to do as you need to estimate long term liabilities etc. Here is a summary position and you can find the rest on the site http://www.treasury.govt.nz/government/longterm/fiscalposition/2009/22.htm http://www.treasury.govt.nz/government/longterm/fiscalpositi... All governments should do this....
    - nodata 15y ago
      This is excellent. What prompted them to do this?
      - justincormack 15y ago
        I forget the original reasons, it was some time back. There is a statement here: http://www.treasury.govt.nz/budget/2010/is/04.htm http://www.treasury.govt.nz/budget/2010/is/04.htm I seem to remember it was partly prompted by a new government wanting to prove they were fiscally responsible, but also I think there has always been quite an awareness as there is a huge earthquake reconstruction fund (now entirely in external assets) in case of disaster, which would prompt some thinking about assets and liabilities.

by nodata 15y ago

Why does government debt equal private assets? and another question: why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free?

dexen 15y ago

> Why does government debt equal private assets? Not that I fully agree with his assertion, but: Gov't debt usually takes form of `bonds'. Such bonds are issued for fixed terms and traded on free market. Both private and institutional investors (including other countries) invest in bonds, thus some of gov't debt will normally be in hands of private investors. Government bonds are considered highly secure and reliable means of investment, if somewhat low-yield. That allows the issuing country to rely on bonds for matching income to expenditures any time it needs to, at rather low cost. Should a country declare bankruptcy, or just near it, this instrument is much harder to use for the govt. Consider having a look at http://en.wikipedia.org/wiki/The_ascent_of_money http://en.wikipedia.org/wiki/The_ascent_of_money which covers the topic pretty well.

tobylane 15y ago

Government debt is apparently a good thing, it encourages internal private (businesses of that country) growth. I can't find more about it, it is something worth understanding properly.

nhaehnle 15y ago

> why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free? Axiomatically, if you sum up over all worldwide assets and liabilities, they sum to zero. That is a fact that simply follows from accounting. So the world as a whole is (net) debt free (until we start trading with extraterrestrials, then things might change). The US probably is roughly net debt free on average, summing over all domestic private and government assets and liabilities. I don't have time to run the numbers right now. Certainly, even if the US is not debt free on average, its net debt towards foreigners is much less than the government debt, and also less than the sum of government debt held by foreigners. If people just stopped looking only on one side of the coin, they would realize that and chill out over the government debt.

justincormack 15y ago
The fact that net debt is zero does not make people or countries creditworthy and able to pay.
stayjin 15y ago
It is not that simple. Have you ever wandered why counties do not have to issue balance sheets at the end of every fiscal year( or at least before every election) ? Do you understand how easy it would be to judge how a government performed by comparing two of these? And ask all the right questions, exactly as MS investors do with the "developers, developers, developers" CEO?
- justincormack 15y ago
  Thats just because they dont want to share the information transparently. New Zealand started issuing a real balance sheet quite some time back, and it is very interesting. It is hard to do as you need to estimate long term liabilities etc. Here is a summary position and you can find the rest on the site http://www.treasury.govt.nz/government/longterm/fiscalposition/2009/22.htm http://www.treasury.govt.nz/government/longterm/fiscalpositi... All governments should do this....
  - nodata 15y ago
    This is excellent. What prompted them to do this?
    - justincormack 15y ago
      I forget the original reasons, it was some time back. There is a statement here: http://www.treasury.govt.nz/budget/2010/is/04.htm http://www.treasury.govt.nz/budget/2010/is/04.htm I seem to remember it was partly prompted by a new government wanting to prove they were fiscally responsible, but also I think there has always been quite an awareness as there is a huge earthquake reconstruction fund (now entirely in external assets) in case of disaster, which would prompt some thinking about assets and liabilities.