What does “national debt” mean?

In response to my posting, “Leave the world economy alone!” (1 June), Atanu Dey wrote the following: “Keith, I have never understood what “national debt” means. Would you care to write a short explanatory post on what it is. I know what debt means when it comes to an individual. I owe someone $100. But when someone says “national debt”, I am not sure who owes whom. Thanks.”

As I see it, a “national debt” occurs when one country cannot supply enough of a currency — in quantity and specificacy (a tradable currency) — to satisfy a foreign creditor. The debt may be incurred by the government as a state to state loan or it may be a trade debt of one of its domestic businesses or a collection of them. If creditors are unwilling to accept a discount on the debts — or ‘take a haircut’ — then the country effectively becomes a pariah state which cannot trade and its economy immediately deteriorates .

If a country can subsequently show that it seriously intends to reform its expenditures — often after the government has been overthrown — then some other providor, such as the IMF — will risk a further loan to give it the running liquidity it will need.

3 thoughts on “What does “national debt” mean?

  1. That definition sounds like a National Default or bankruptcy. I posted a comment on this with a broader definition of it.

  2. Thanks, Keith. It appears to me from your description that national debt has something to do with currency. That is, national debt is about paper money and stuff like that.

    Can we talk about national debt without reference to currencies?

    Still, I find the whole notion of debt related to aggregates rather confusing. If A owes $10 to B, then the national debt of the micro-nation consisting of A and B is how much?

    1. Did either of you, Keith or Atanu, read my comments? Keith’s definition is not used by anyone I know, and I’ve followed this arena for several decades.

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