The United States government has continuously had a fluctuating public debt since its formation inexcept for about a year during —, a period in which president Andrew Jackson completely paid the national debt.
Municipal bonds, "munis" in the United States, are debt securities issued by local governments municipalities. Denominated in reserve currencies[ edit ] Governments often borrow money in a currency in which the demand for debt securities is strong. An advantage of Public debt bonds in a currency such as the US dollarthe pound sterlingor the euro is that many investors wish to invest in such bonds.
Countries such as the United States, Germany, Italy and France have only issued in their domestic currency or in the Euro in the case of Euro members. Relatively few investors are willing to invest in currencies that do not have a long track record of stability.
A disadvantage for a government issuing bonds in a foreign currency is that there is a risk that it will not be able to obtain the foreign currency to pay the interest or redeem the bonds. In andduring the Asian financial crisisthis became a serious problem when many countries were unable to keep their exchange rate fixed due to speculative attacks.
Credit risk Although a national government may choose to default for political reasons, lending to a national government in the country's own sovereign currency is generally considered "risk free" and is done at a so-called " risk-free interest rate.
However, it is widely considered that this would increase inflation and thus reduce the value of the invested capital at least for debt not linked to inflation. This has happened many times throughout history, and a typical example of this is provided by Weimar Germany of the s, which suffered from hyperinflation when the government massively printed money, because of its inability to pay the national debt deriving from the costs of World War I.
In practice, the market interest rate tends to be different for debts of different countries. An example is in borrowing by different European Union countries denominated in euros.
Even though the currency is the same in each case, the yield required by the market is higher for some countries' debt than for others. This reflects the views of the market on the relative solvency of the various countries and the likelihood that the debt will be repaid.
Further, there are historical examples where countries defaulted, i. This is because printing money has other effects that the government may see as more problematic than defaulting. A politically unstable state is anything but risk-free as it may—being sovereign—cease its payments.
Examples of this phenomenon include Spain in the 16th and 17th centuries, which nullified its government debt seven times during a century, and revolutionary Russia of which refused to accept the responsibility for Imperial Russia 's foreign debt.
It is mostly uncommon for invaders to accept responsibility for the national debt of the annexed state or that of an organization it considered as rebels. On the other hand, in the modern era, the transition from dictatorship and illegitimate governments to democracy does not automatically free the country of the debt contracted by the former government.
Today's highly developed global credit markets would be less likely to lend to a country that negated its previous debt, or might require punishing levels of interest rates that would be unacceptable to the borrower.
Treasury bonds denominated in U. This disregards the risk to foreign purchasers of depreciation in the dollar relative to the lender's currency. In addition, a risk-free status implicitly assumes the stability of the US government and its ability to continue repayments during any financial crisis.
Lending to a national government in a currency other than its own does not give the same confidence in the ability to repay, but this may be offset by reducing the exchange rate risk to foreign lenders. On the other hand, national debt in foreign currency cannot be disposed of by starting a hyperinflation;[ citation needed ] and this increases the credibility of the debtor.
Usually small states with volatile economies have most of their national debt in foreign currency. For countries in the Eurozonethe euro is the local currency, although no single state can trigger inflation by creating more currency.
Lending to a local or municipal government can be just as risky as a loan to a private company, unless the local or municipal government has sufficient power to tax. In this case, the local government could to a certain extent pay its debts by increasing the taxes, or reduce spending, just as a national one could.
Further, local government loans are sometimes guaranteed by the national government, and this reduces the risk.
In some jurisdictions, interest earned on local or municipal bonds is tax-exempt income, which can be an important consideration for the wealthy.
Clearing and defaults[ edit ] Main articles: Globally, the International Monetary Fund can take certain steps to intervene to prevent anticipated defaults. It is sometimes criticized for the measures it advises nations to take, which often involve cutting back on government spending as part of an economic austerity regime.
In triple bottom line analysis, this can be seen as degrading capital on which the nation's economy ultimately depends. Those considerations do not apply to private debts, by contrast: Governments need a far more complex way of managing defaults because they cannot really go bankrupt and suddenly stop providing services to citizensalbeit in some cases a government may disappear as it happened in Somalia or as it may happen in cases of occupied countries where the occupier doesn't recognize the occupied country's debts.public debt n 1.
(Economics) the total financial obligations incurred by all governmental bodies of a nation 2. (Economics) another name for national debt na′tional debt′ n.
the financial obligations of a national government. Also called public debt. [–85, Amer.] ThesaurusAntonymsRelated WordsSynonymsLegend: Switch to new thesaurus Noun 1.
The Chief Counsel of the Bureau of the Public Debt (BPD) supervises a Deputy Chief Counsel, staff attorneys, and support staff.
The Chief Counsel's Office has staff in both Washington, D.C.
and Parkersburg, WV. public debt n 1. (Economics) the total financial obligations incurred by all governmental bodies of a nation 2. (Economics) another name for national debt na′tional debt′ n.
the financial obligations of a national government. Also called public debt. [–85, Amer.] ThesaurusAntonymsRelated WordsSynonymsLegend: Switch to new thesaurus Noun .
As of July 31, , debt held by the public was $ trillion and intragovernmental holdings were $ trillion, for a total of $21 trillion. As of October 28, , public debt was $ trillion and intragovernmental holdings were $ trillion with a total of $ trillion. Gross Public Debt. The total or gross public debt is a combination of debt held by the public and intragovernmental debt.
This combination represents all federal debt, whether the debt issuance is by the Treasury or any other government agency. Current Openings The following vacancies are open to the general public: FSP New!
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