October 9, 2019 7:46 am Written by

Can Countries Be In Debt?

When we think of debt and being in debt, many of us have the same idea or vision of it, owing money. We have borrowed money, and need to pay it back.

There are many ways we can find ourselves in debt, such as taking out a loan(s), or using some form of credit.

Debt gets a bad reputation, and is considered a “four letter word”, but the fact is debt in itself is not bad.

If you need a loan to buy a car, or a property, or want to use a credit card to make a purchase online, these are all forms of credit and placing oneself into debt.

Debt in itself is not bad as long as you can afford to repay the credit.

Insolvency is bad, when you owe more than you can afford to repay, and you are insolvent, that is not good. Debt in itself is not bad.

As consumers and individuals we can associate debt with borrowing, paying loans, and owing money. But can countries be in debt?

Countries Borrow and Owe Money

Countries and governments can and do have debt, and the debt is created in the usual fashion, by borrowing.

Government debt can be from a few sources, money borrowed internally from inside the country, and money borrowed from outside the country.

Countries and governments being in debt can get complicated. Things such as when spending exceeds revenue through taxes and other means, creates a deficit. A loss, which creates debt as well.

As of last year 2018, the United States had a national debt of around $20 trillion, and the UK had debt of around $2.5 trillion.

A trillion is a lot of debt, one trillion looks like this, £1,000,000,000,000!

Brexit and UK Debt

It has been recently postulated by the Institute for Fiscal Studies or IFS, that a “no-deal” Brexit could cause the UK’s debt level to rise to a 50 year high.

The Director of the IFS, Paul Johnson stated, “The government is now adrift without any effective fiscal anchor.

He added, “Given the extraordinary level of uncertainty and risks facing the economy and public finances, it [the government] should not be looking to offer further permanent overall tax giveaways in any forthcoming Budget.

“In the case of a no-deal Brexit, though, it should be implementing carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy.”

The bottom line is the country’s spending will continue to exceed its revenue, and in fact grow, creating new debt.

A spokesperson for HM Treasury said, “September’s spending round supported the people’s priorities of health, education and the police within the existing fiscal rules, as we said it would be.”

“Beyond that, the chancellor has already said that we will be reviewing the fiscal framework as we turn the page on austerity. In so doing, we will retain a fiscal anchor to public spending so that decisions are taken with a view to the long-term sustainability of the public finances.”

So yes, countries can be in debt, and we here in the UK may find ourselves in even more debt post Brexit.

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