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How To Search ELI5: A Quick Reminder About Rule 7
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ELI5 Why does water turn white when going over a waterfall? My 8 year old asked me and I was at a loss to explain.
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ELI5: how did women shaving their legs/armpits come about and why did men not do it too?
8399
ELI5: Why does a familiar word sound unfamiliar after you overly repeat it?
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ELI5: There's 21% oxygen in air. When we breathe out, there's still 16% oxygen in the exhaled air. Why's our lung so inefficient?
108
ELI5: How close to 50/50 are genes from our parents? Is it possible to have more genes from one parent than the other?
177
ELI5 why is there so much activity with the Ring of Fire recently? How do we know which earthquakes are directly linked? Should California be as worried as the media makes out?
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ELI5: Why does having "good lawyers" get people off with lesser punishments even if they're obviously guilty?
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ELI5: Why is older wine considered "better"?
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ELI5: Why might it be so hard for me to fall asleep again after waking up, but once my alarm goes off and I'm supposed to wake up, I suddenly can't stop hitting snooze and going back to sleep?
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ELI5 How do civil engineers determine if a building is structurally sound after an earthquake?
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ELI5: Why do we feel tense in our shoulders when we are stressed?
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ELI5: Why didn't the US experience hyperinflation that many economists and politicians said was going to happen when the FED did its quantitative easing during the Great Recession?
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ELI5 If symptoms of a cold serve the function of ridding our body of the illness, then do cold medicines that reduce these symptoms slow our recovery?
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ElI5: How does anesthesia make us unconscious but doesn't harm or shut off unconscious functions?
3
ELI5; why is it that people snore when they are asleep, but don't have the same breathing pattern when awake?
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ELI5: How can a cable possibly be stretched across the entire Atlantic Ocean?
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ELI5 why is it that we always see so many new awesome ways to fight cancer and yet it seems nothing of it is ever being used?
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ELI5:Banned weapons in war
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ELI5: Why is CTE brain damage such a hot topic in the NFL, but don't hear anything from the Rugby community?
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ELI5 Why do so many conservative groups use the word "Patriot" in their name?
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ELI5: Why does the ESRB have a "Real Gambling" descriptor if online real-money gambling is illegal in the USA?
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ELI5 why we tend to raise our voice when we're mad
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ELI5 How do certain animals have the exact same pattern as a leopard?
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ELI5: Why do indian people and other asian people have different skin tones despite being so close geographically?
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ELI5: Why can my body handle heat or cold somedays better than others?
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ELI5:Why is there such a huge disparity in airline prices (example in text)?
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ELI5:Why must the Pythagorean Theorem contain squared values? Is there a relationship between sides prior to squaring them?
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ELI5: Would inflation still happen if the population didn’t increase?
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ELI5: Why are there still a few operating Blockbusters, and where does the money that they make go?
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ELI5 - I'm driving on a Rosario with my 5 year old and she asks me how power lines carry electricity
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ELI5 why can't we smell anything wen having a cold?
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ELI5: That feeling you get when you’re traveling in a car and you go over a small but quick hill and your stomach has that weird sensation in it right as you reach the top and are hearing back down.
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ELI5: What exactly is happening when one has water trapped in their ear?
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ELIF: Why do people in black and white movies and tv shows sound the same?
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ELI5: How does someone end up in extended domestic captivity and remain there?
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ELI5: Why aren't service animals regulated by any sort of governing entity?
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ELI5: Why didn't the confederates ever march on Washington D.C.?
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ELI5:Why do some books have "This page has been intentionally left blank" page?
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ELI5: why does a combination of weird scents, audio, and visual stimulation make me feel nauseous?
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ELI5: How are satellites able to show such high definition photos from outer space
3726 cchoe1 You can borrow from your own people. The money that is printed is **FEDERAL RESERVE** (thanks for the corrections) notes--it's *technically* a debt that the Reserve owes the bearer of the note (but printing money does not technically increase the debt supply--the role of money has changed since fiat currency). When you print more money, you are devaluing the rest of the currency that is already in circulation. This means that if the govt decided to print $100,000,000,000,000,000 (1 quadrillion dollars) in the span of a week, the value of the dollar would probably crash pretty hard (probably...). This is related because people use money to buy US debt--we're loaning the US govt the very money it prints. The only reason that this results in anything favorable is because people all over the world value USD and that paper currency represents potential labor, new assets, etc. If you own a baseball card of Sammy Sosa, there is a chance it could be worth a lot of money. Now imagine if the card company just mails a Sammy Sosa card to every family in America. Your Sammy Sosa card isn't worth anything anymore because there are so many of them and everyone has it now. Now imagine if they mailed another 5 to everyone--the value crashes even harder because there are SO many of them now. That's the same idea with money. You can't keep printing more money or else the value of it will deteriorate. But the gov't keeps issuing more debt and we still look at $20 like it's $20, right? Eventually, there could come a time when we look at a $20 bill and it means nothing to us. This is what happened in Zimbabwe where a billion dollar transaction might happen for a loaf of bread. They printed so much money (without proper secure backing by the gov't) that it just became worthless. So they started to just increase the numbers on their currency so you can actually pay for something. Because the gov't theoretically owes its population money, they issue paper as a certificate of this. You might not have physically went to the bank and traded something in return for paper but you did something that warranted the earning of that dollar. If you work for a company, they pay you that money because it has value and you can buy things with it. The only reason it has value is because the US gov't says it does. You can pay gov't-related fees and bills with the money they issue and because the gov't is well-secured, people accept it. If our gov't was unstable, no one would trust the dollars they slept under for warmth because the gov't could just come out and say, 'Sorry we're not paying you guys back'. Well what would they be paying back? To whom are they paying back to? It used to be gold. But as we grew as a planet, we ran out of gold to back every dollar with and it just became a nightmare to handle. Enter, fiat currency, a piece of paper that means nothing except what the gov't says it means. People used to go to banks with gold and receive 'money' for it. The banks would literally hold their gold and give them an certificate that says they own a claim of gold in their vaults. If ANYONE brought that certificate to the bank, they could expect to receive gold for it. That's what gave it value. You could say you want that farmer's potatoes and he can go get $1 of gold from the bankers at his convenience or he could hold onto it and use it just like the person did before him--'trade' it for something else like new shoes. Why? Because everyone liked gold and everyone believed gold had value. Eventually, this took off and people stopped trading for things and we developed currency with quantitative values that allowed for easy exchanges to take place. So you might think, 'Well, now that there isn't gold behind my dollar, how is it worth anything even if the gov't say it is? They won't give me anything in return for it". The same thing applies to gold. No one wants gold unless other people want gold. If you can't reasonably trade your gold for something else, then what value does it have? (Someone did point out you can shave gold flakes into your water and drink it, like some companies have chosen to do, but that's on you) As long as people continue to value dollars, it doesn't matter what it's worth, sans some certain supply and demand laws. So gold is no different in that regard. The ONE difference between paper currency and gold is that $100,000 in cash weighs a lot less than $100,000 in gold and is a lot easier to hide too. EDIT: I made some slight revisions to correct errors and to try and relate things better to the main topic at hand. Sorry, I kinda started rambling. I have also posted below in response to u/penny_eater to correct my errors and explain them in a little bit further detail but it kinda strays away from ELI5 territory. This kinda seems all over the place but it should be good starter information for someone trying to understand debt markets and macroeconomics, in general. Monetary supply and debt are pretty hand-in-hand, even if they're not exactly the same thing. Larger and more complex economies warranted the development of fiat currency which ultimately changed the role of currency, in general. It no longer represents a claim, per se, but it represents value because the gov't says it has value and will accept it for gov't related transactions and business with foreign entities. Also, don't get me started on the petrodollar. ------------------- **Sorry I wanted to just double clarify. My main answer to the question "Who does the US Gov't borrow from?" was "It's own people". My money talk (everything after that first sentence) was just to lead into the topic of increasing debt, economics, and the value of this debt in the coming future. ** I thought "It's own people" would be a sufficient answer to that but started to get into the reasons why that is starting to look like a bad idea especially in our current economic environment.
2516 flooey There are a whole bunch of sources. The major ones are: * Themselves. One of the major holders of US government debt is the US Social Security system, for instance. * Other countries. You can simultaneously owe money to someone and be owed money by them, and there are a few countries (eg, some of the major oil producers) that are net lenders. * Non-governmental entities. Retirement funds, personal investment accounts, corporations, etc, all purchase government debt because it's one of the lowest risk investment options available.
292 yes_its_him Lots of people want to loan money to governments, since they are likely to get their money back. So that all counts as government debt. If you invest in a government bond fund, you are loaning money to the government, and contributing to the debt. Governments have a lot of assets that they don't keep on their balance sheet, too. The US could pay down the debt by selling off government land, they way they already auction off mineral rights, spectrum licenses, etc.
78 cashm3outsid3 anyone! for instance in the US they'll have debt auctions where usually financial institutions will place bids on debt. Some of these institutions will be retail banks and they offer them as investments to everyday people. To understand bidding on debt here's a simple example: The US govt says they will pay $1000 to someone in 5 years. What's it worth to you? For the US govt there is basically a 0% chance they won't be able to pay that $1000 so maybe they can sell that promise for $950 today. They'll do with with billions of dollars on a regular basis.
461 ArminiusGermanicus Here is a breakdown for US debt: https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 I am surprised how much of it is owned by government agencies. The small Cayman Islands owns $254 billion of US debt. Sounds totally legit, lol.
38 Alberius One another, their own people. What most people fail to realize is that the global economy is what is called a "faith based" economy. Basically the money doesn't actually exist and is worth exactly as much as people think it is. This is why after 9/11 it was so essential for the US government to get people going out and spending again and to get wall street betting again. Without constant faith in the economy it inevitably will crumble. This system works fairly well but all you need to destroy a country is for its people to lose that faith which is one reason why Greece is in such a massive shit storm right now.
50 sirgog For the United States, the biggest owners of the debt are private American citizens. Other big sources are loans from one government department to another, money outstanding for work performed by government contractors (e.g. if the US state pays ABC Corporation $27 million for constructing a road, that $27 million becomes debt from the time contracts are signed until the final payment is made), and the sovereign wealth funds of other countries.
62 stereoroid Some rich countries such as Saudi Arabia and the UAE have "sovereign wealth funds" that invest heavily in other countries e.g. buying US Treasury Bonds is basically buying US debt. Rich individuals are also in the Bond market via investment banks.
17 8Milesofshade **tl;dr:** They are borrowing from banks. When a loan is taken out, money is created out of thin air. The borrower is able to spend money that didn't exist before, and the lender is able to create profit for themselves (interest) quite literally out of thin air. The borrower also now owes the lender something that didn't exist before. Neat! This is one of the cool things that happens in a fractional reserve banking system. Fractional reserve bankers can do cool things that other people aren't allowed to, like loan out things they don't actually have. A bank is only required to actually have a certain fraction of the money they loan out. This smaller amount is called the reserve amount. Example: Bob has a tool rental company. He rents out saws to people doing construction work. Bob has 20 saws, and charges $10/day to rent one. The most Bob can make is $200/day. Bob's friend, Mike, is smarter than Bob, because he owns a fractional reserve tool rental company. Mike only had to buy 20 saws, but through the magic of banking, he's able to create 190 saws out of thin air, so he can rent out 200. Mike can make $2000/day.
22 Berkamin They are borrowing from central banks that issue brand new money out of nothing to buy bonds. These bonds must then be paid back with not only the money issued out of nothing, but with interest. The money for the interest wasn't created as part of the initial loan, so it either comes out of the general money supply, contracting the money supply. To counter-act that, the debt ceiling must be raised, and more new debt-money must be borrowed to service existing debts, in an never ending cycle of escalating debt. To a certain extent, the borrowing does come from bond buyers other than the central bank, so not all of the money is newly issued, but the vast majority of the money is newly issued. That's why we have inflation; the purchasing power of money itself is a matter of supply and demand. If the money supply didn't constantly grow due to more money being issued out of our debt cycle, we couldn't possibly have inflation because there would be a fixed amount of money. I'm sorry it's such a depressing answer, but this is the way it works. See the documentary "Money as Debt", along with the follow-ups addressing challenges, such as the matter of stock and flow. [Money as Debt (2009)](https://www.youtube.com/watch?v=0taBYaB_Zh4&list=PLdMxiaZGboJSgU2raUksCFGSUfWS8eHR8). Also see Money as Debt II and III. **EDIT** The system of bonds to finance public spending is another way they raise money via debt, but it really ends up becoming a giant engine for redistributing wealth from the everyone to the rich, who are the only ones buying bonds. Governments issue bonds (debt) when they can't muster the political will to raise taxes to fund spending. The only people buying bonds are the investment class, usually the top 10% wealthiest fraction of our economy, with the buyers skewed disproportionately to the wealthiest institutional buyers. However, our taxation system is so full of loop holes and our states are so dependent on sales taxes (which disproportionately burden the poor and the middle class) that when these bonds are ultimately paid for by taxes (plus interest), the effect is to take revenue from sales taxes and state income taxes and to give it to bond buyers (the rich).
23 faaaks From each other. Lets say you and two other friends are sitting in a circle. Friend 1 says let me borrow a dollar. You then lend him the dollar. Friend 2 asks friend 1, let me borrow a dollar, and then hands him the dollar you just lent him You need a dollar and so ask Friend 2 to lend you his dollar, giving back your dollar. Among the three of you, you have three dollars worth of debt only generated by 1 dollar worth of actual value. The cycle could continue, creating very large debt for very little real value in the small 3 person economy. The same is true for countries. They borrow from each other, who lend out their borrowed money, who lend out their borrowed money creating far more debt than actual value in the economy. Creditors are debtors to different creditors. Debt is a web of payments and it allows our economy to grow quickly. The downside is what happens when a major debtor cannot pay back their creditors? Suddenly their creditors cannot pay back their own creditors and so on and so on... And that is how we get "too big to fail." Letting the banks fail in 2008 would have been a catastrophe because of the network debt payments.
30 Basedeconomist Lots of great responses here about individual nation's debt. If we are thinking globally, the simple answer is we are borrowing from the future. It is a pretty safe bet. We have shown increases in productivity, the ability to tap more natural resources, and decreases in overall production costs as technology and innovation continues. Currently we have 7.1 billion exoflop level supercomputers, online, working in each of their own ways at bettering themselves and humanity. Hundreds of thousands more come online each day. It is unlikely these processors fail before they begin to work on tougher problems. Menial tasks, such as finding a power source, are also becoming less and less of an issue as absolute poverty is being reduced. I'm talking of course about human minds, reductions in infant mortality, and the ability to think about bigger problems than our next meal. TL;DR:The future looks more productive than the present. Luckily through financing we can move some of the wealth of tomorrow, into today.
21 Insert_Gnome_Here Imagine you're a government agency and you want to build a road bridge across some river or other. Given your budget, you'd have to wait five years to save up enough for the bridge. What you do is you get a construction company to build the bridge, but give them an IOU that you pay back over five years. You calculate that the interest you will end up paying on the loan is less than the value of the bridge over the five years (through tolls and/or boosting the economy). This way of doing thing means that the government is constantly in debt. It allows the government to be more efficient, but it does have certain [downsides](https://en.wikipedia.org/wiki/Economy_of_Greece).
27 -domi- If i was a governmental figure in a small, corrupt nation, while my cousin owned a business, i could buy a thousand dollars worth of his product uprated to a million dollars on behalf of my government. Now the market rules no longer apply. If i was a small government that badly needed an influx of money to fend off, say, famine. A big international lending entity comes up and says "we will give you rice money, at 100% interest." In the name of my people's survival, i take it, then never pay it back - debt just grows through the roof and into outer space with zero chance of relief. In short, there are many ways to generate baseless debt, this shouldn't surprise you. I still owe my brother a million dollars for this one time when we were kids and he gave me half his chocolate croissant if i agreed to pay $1M. He can take my ass to court, though, fuck the police.
10 vitriolic_amalgamati Okay, so, say it's the end of the month. You owe money on your VISA card and it's time to pony up. But you don't have the money. What do you do? Easy. You sign up for a Mastercard and pay off the VISA with the Mastercard. But what if Mastercard was running low? Eh... can they just take out a loan from VISA? YEP! HELL they've been doing it for a while now, sure it's a bigger amount and riskier loan than last time because not only do they need that loan to loan out at higher rate to You for profit but they also need more on top of that to keep their business afloat, so the interest rate on the loan is a bit higher than last time, but who gives a fuck?! WE CAN DO THIS FOREVER RIGHT?!? right? WAIT! What if this has been going on for a long ass fucking time and interest rates are so high that we reach a point in this cycle of debt transference where VISA was also out of $$ to cover their last loan payment and needed to wait for you to pay them back before they have any $$ to loan out to Mastercard, which Mastercard needs to give to you so you could pay back $$ to VISA which they need for Mastercard?? OMG IT'S LIKE SOME KIND OF MEXICAN STANDOFF!!! IS THE SYSTEM GOING TO IMPLODE ON ITSELF?!?! WELL NOT RIGHT NOW. Because of their gigantic brains, VISA knows it'll have money when you pay it but that will only happen after it needs to pay Mastercard. So, it'll simply just print out a bit of extra money that shouldn't technically have any actual value (sort of like printing counterfeit cash, except instead of your mom's photocopier, the cash gets created the normal way, through the mint, making it completely identical to the national currency already out in circulation SO NO ONE CAN EVER KNOW THE SHAMEFUL DIFFERENCE) and besides, it's only a little bit that didn't exist before, just to get over this little hump so who cares right? And this way we get to keep on existing without our civilization collapsing, but what's the actual cost? IS THERE EVEN A DOWNSIDE?!?! YEAH THERE IS. Each time they slip a little bit of valueless denominations of national currency into circulation, everyone who has any of that country's currency ferreted away, those $$ will become a bit less valuable... even if it was hidden under their mattress the entire time. HOLY SHIT INFLATION IS A SNEAKY MOTHERFUCKER In this metaphor VISA, Mastercard and You are every country in the world! And the circlejerk of debt is sustained. Everyone congratulates each other on being so smart. The cost of which was merely a bit of inflation to the national currency. So the system IS technically imploding on itself but more slowly now as long as it can print out a bit of "official" money that just siphons off a bit of value out of everyone else's $$ and as long as the national currency's value is strong enough to survive the inflation and not become too close to valueless (which is slowly/very quickly happening to everyone's national currency) at least it will survive for now. Does anyone even really care that's partly why things are twice more expensive today than they were 20 years ago? WELL SOME SURE AS FUCK DO. Sure, it's a quick easy way to force people to pay the price of the country's sloppy business practices. BUT they're aware of it. They're pissed off so much that they have such high income taxes that on top of it the fucking $$ they worked their asses off squirreling away for retirement is losing value faster than they can make it, why should they have faith in their national currency as its slowly imploding on itself and taking away the value of their hard earned $$ with it A decentralized alternative global currency controlled by a protocol, protected and enforced by everyone at the "bottom" with a strict finite amount to ever be created gets developed by malcontent computer scientists as a means of getting off national currencies as a big fuck you to VISA country for abusing their finances. It increases in value as hard and fast as there are corrupt governments in the world that freely try to fuck over their own people Suddenly people who had enough of their national currency's inflation problems are trading it in for a world-first globally supported currency and not even the most corrupt countries have any feasible way of swaying the ebb HOLY SHIT THE TABLES HAVE TURNED MOTHERFUCKERS and that's why bitcoin is up 400% since January But yeah, to answer your question, our countries are basically paying off the VISA with the Mastercard
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10 robertmdesmond They borrow the money from bondholders who purchase the government's bonds which represent the promise to repay the money. The U.S. Treasury will issue T-bills or Treasury Bonds and offer them for sale to buyers. In the case of the U.S. debt, the primary bondholders are the Federal Reserve and foreign countries like China, Japan and others. [Here is a chart.](http://money.cnn.com/2016/05/10/news/economy/us-debt-ownership/index.html) But anyone can own them. When a country finances current spending with debt, they obligate future generations to repay it. That arrangement is not as one-sided as it first seems: The current generation leaves behind technology, innovation, science, research, infrastructure and investments that benefit all future generations but the current generation will never benefit from.
8 FlexGunship In general, the most literal answer is "the future". Since governments are not productive entities (they don't build cars, or operate movie theaters) they sell debt for future repayment. Taxation is generally the source of repayment of debt. So taxes go up as more debt is taken on. If 20% of all taxes go to pay interest on debt and the country borrows another 5% then taxation in general will go up to cover the interest on that new 5%. Asked another way, who owes the debt you take on a loan? Future you. Who do you owe it to? Yourself! So you can pay your loan in the future. **You are borrowing from your future self to take a loan out today.**
7 PM_ME_YOUR_THESES First of all. The country is not in debt. The government of the country is. The government is usually the largest organization in each country (though that's not always the case), and it is also very influential in each country. But national debt is not the sum total of debt of every individual, organization, company, or government in a given country. It's just the debt of the "main" (what the US calls "Federal") government. So, the government borrows from other governments, or from private individuals both in their own country and abroad. When people say that "China owns $x billion of US debt", they mean that the Chinese government owns IOUs signed by the US treasury worth so many billions. But there are more chinese private entities (companies, corporations, people) who own many more. It's worth noting that US government debt is the safest debt in the world and so everyone wants to loan money to the US, regardless of how deep in debt it already is. The US owes money to all sorts of people and organizations from all sorts of countries around the world.
3 slo1111 Gov issues a bond which is a promise to pay the amount borrowed plus interest. Just like any loan the interest rate is set by the perceived risk of getting paid back the loan. Banks, financial institutions, mutual funds, hedge funds , insurance companies and even other countries buy bonds issued by governments because they are perceived low risk in comparison to other investment options. If you were to suddenly have all countries stop issuing and pay off their bonds there would be trillions of dollars that needs to find a place. If they leave it as cash inflation eats away at the value. If it goes into stock market it is easy to lose value, too risky. The bonds issued by countries plays a valuable role in today's world. They of course do carry some risk depending upon a countries fiscal state.
7 craephon I can't believe none of the top comments mention FUTURE GENERATIONS. Eventually printing money and debt catches up and punishes, severely, those in the future still alive to have to deal with the consequences.
4 cameljocky26 The future, they are borrowing money from the future, and are reaping the rewards of the loans now, but sacrificing future generations with the debt, that's why a lot of people see national debt as unethical.
4 LurkerLuo There's some good answers here, but in my skimming I didn't see any that mention this. No matter what the vast majority of countries will never be out of debt. Most country systems are built on debt. Central Banks are private entities that loan money to government with intrest. The government needs to make more money than it was loaned to pay back the banks, but in order to do that they need more money. So, they have to borrow from the bank again with intrest. And the cycle continues. Politicans could abolish the system, but it would mean an end to easy money so they are not so eager to do so. If you're intrested check out the books End the Fed by Ron Paul and The Creature from Jekyll Island: A second look at the Federal Reserve by Edward Griffin. They go into way more detail that a five year old would probably not understand.
3 wonder590 Each other, themselves, companies, and private citizens. Its important to note that debt for a country is not the same as debt for an individual. Countries can leverage debt and not pay back the entire amount upfront. Investment in the government bonds solidifies faith in the countries continued exsistence, and as long as the debt doesnt exceed a certain threshold of the countries GDP and the country makes its payments on time, the debt actually provides for healthy financial security for the country.
2 SunnyWaysInHH Capitalism is not a zero sum game. Most credit/money just comes from nothing to invest into future growth...what??? I ll explain: If a bank gives you a 1000$ loan, they don't lend you money from other people or their vaults, but just book 1000$ on your bank account. That's it. Money just appears from nothing. Then you work your a** off and one year later you will have given the bank 1200$ back. So the bank invested into your future work of 1000$ and has earned 200$. Banks are usually allowed to give credit ten times their own worth. (The same goes for central banks btw). Of course their are other lenders. America's own citizens, rich people, other rich countries, banks. But the loans which float around the globe are much higher than what people and countries actually own. They must be. Otherwise capitalism would collapse. It depends on growth and growth can only happen, if you bet on future growth. What??? I ll explain: A capitalist owning a factory needs new machines to produce more stuff more efficiently. He lends money from a bank which the bank just creates out of nothing, then he can invest and produce more stuff and gives the money back to the bank three years later with interest. The bank bet on his future growth and won. Crazy, but that's the world we live in. During the housing crises the banks lost the bet by the way and therefore then collapsed. Because the bet was irresponsible. It's that easy. Seriously.
4 IronBear76 The government of the countries is borrowing from individual people and companies. When someone buys a government bond, that bond is debt from the point of view of the government. That is the simple answer.
2 DisparateNoise There's a lot of investible assets in the world, like a lot a lot. One estimate is 241 trillion. That said, world sovereign debt is around 60 trillion. What that number really means is all the governments of the world have run 60 trillion in deficits since they began issuing debt. Some of those deficits are picked up by internal organizations, like SS, which pays for the debt with a payroll tax. The rest is picked by external investors: other government s, banks, mutual funds, et cetera. Bonds are a really safe place to keep money while technically also making a profit, so when people or organizations are looking to diversify their investments they buy them to secure other investments. This does have its negative side effects however. Large amounts of extremely safe investments can drain the supply of money to other, also safe but more economically productive investments. This is bad because it means those safe investments have to raise their interest rates, effectively raising the "price" of capital. This retards the overall growth of the economy. So long as more wealth is generated by the economy to invest, debt can keep going up, but if the supply of debt outpaces demand... Well it would be pretty bad to say the least.
8 OH_Lawman What if I told you that "modern" debt is an imaginary creation made up by the worlds richest banks, individuals and private investment groups. Those who control 90% of the wealth of the world. That also control the "worth" of "insert your currency here" and that all governments including the US government are enslaved to because it's where they borrowed the money from.. And that not a single cent of your tax money goes towards the debt or to the better good. And that the money is used to pay off the governments debt to the banks and private investors etc. There is a reason we no longer back the US dollar by gold... Read the book, "The creature of Jekyll Island" G. Edward Griffin.
3 OverlySarcasticDude While most people have covered the main points, one many people seem to have missed is the fact that much of the debt it owed to itself and can be paid back by far less money than the actual debt is worth. To massively simplify things, say we have Jim, Bob and Sam. If Jim lends Bob £5 it is all pretty simple. Bob is in £5 worth of debt to Jim. However if Jim lends Bob £5 and also Bob lends Sam £5 we have 2 people with £5 worth of debt and a total debt of £10 Despite having £10 worth of debt, it can all be paid off with a single £5 note. Now if we continue the above scenario with further down the line Sam lending Jim £5, everyone is in debt of £5 with a total of £15 of debt in one big circle. (I am kind of ignoring whether people are considered to be in credit here) Now imagine increasing that across all 200(ish) countries and other governmental ventures and having transfers being fired in every direction this gets very confusing. Add to the mix that countries investments in others are often targeted (e.g. Investments in infrastructure, oil, defence) means that using existing investments simply to pay off a debt isn't always an option. TLDR: The debt values are compounded and a huge over estimate of total debt
3 cegu1 Thin air. More complicated: from the future - promise that economy will grow and your sons and grandsons will have no problem paying it back as long as economy grows exponentially (xy percent per year). We will soon need 10 more planets to suistane this system.
2 Luke4_5thru8KJV The oligarchs of the world own the sovereign debt, and constantly steer government policy so that governments go into ever more debt. War is the best creator of debt, so the oligarchs instigate wars and then lend to both sides. The Bible warns against usury, and if we had listened to God and his only begotten son, Jesus Christ, for the last few thousand years, then we would not be in this mess. In Europe, usury was banned for a thousand years, which are now called the Dark Ages, since history is written by the winners. Spoiler alert: When this house of cards we call the global economy collapses, and a new world currency arises which requires biometric access from a mark in the forehead or on the right hand, don't take the mark.
3 Art9681 They are borrowing from the future. Hope and trust is what keeps our economy alive. Hope that future technologies will make enough profit to pay for past debts and trust that future humans will invent them.
8 SuperDope54 Central Banks, around the world are owned by 13 families. These Central Banks have the licence to print money. They can effectively print money all day and just increase the liquidity, thereby increasing the money in circulation, while the debt to repay/service the loans are laboured/endebted to the taxpayers - I.E. you, me and the common working-class people.
1 zeidrich Lets consider what Debt is to start with. When a government wants more money, one of the things that they can do is sell a promise to pay back more money later. This is a treasury security, or a bond. Bonds work like this: You pay $100 now, and you get your $100 back in 2-10 years. On top of that you also get interest periodically. Bonds are popular investment because unless they are a promise to pay back your entire principle, unlike stocks they can't go down in value. And the interest rate is fixed, so if the interest rate goes down after you've bought them, you still get paid interest on the old value. The only risk then is that the value of the US Dollar would go down, or a failure of the US treasury to pay. The next way that they can get debt is through selling something similar to the government itself. I'm going to ignore this for now even though it's a very major part of the equation. But let's look at purchasing treasury securities. Organizations use credit for all sorts of things. I can buy a $10,000 gadget and sell it to my customer for $13,000 but I don't have money. If I borrow $10,000 from someone, buy the $10,000 gadget, sell it to the customer for $13,000 and then repay the lender $10,500 shortly after, I'm $2,500 ahead, and the lender is $500 ahead for that loan. The US government can do that too, but who can loan money to the government? What does that even mean? How do you loan the treasury its own money? Instead, it decides what kind of value it can get from borrowing money. The previous example, if the lender wanted to charge $3,000 to loan the business $10,000 the business wouldn't be willing to do it. If the business was only willing to pay $50 in interest for the $10,000 loan, he wouldn't find anyone willing to lend it to him. Lets say instead of the business we're talking about the government. Now instead of going to a lender and asking to borrow $10,000 they say "Anyone who wants to can buy some $100 bonds, we're selling up to 100 of them. Every 6 months we will pay you $5, and after 2 years we will pay you back your $100 and stop paying you interest." This gives them the means to repeatedly make this transaction. They choose an interest rate low enough that they get value from borrowing the money, but a rate high enough that people are interested in buying them. The amount of money that they think is valuable to borrow without causing too much risk is called the debt ceiling, and limits how many of these they can sell. If the government could sell one of these widgets every 4 months, and took 2 months to get paid for each of them, there's no reason to sell more than 100 of these bonds for this purpose because they're never doing more than one of these transactions at a time. Selling too many would just mean having to pay more interest to have cash that you don't plan to use. Just about anyone can buy these as long as they're for sale. The US economy is pretty safe and the US dollar is pretty strong so it is a safe way to invest. It's not so much that they're borrowing money, but that they're selling promises.
7 Sorokin45 The idea of bitcoin is really interesting for this matter. Only a certain amount were made and no more can be made but they can be mined and broken up in further fractional pieces.
3 gomountainguru The future. We're borrowing money from individuals and institutions that expect we'll be able to pay them back with interest eventually.
2 zimmah Most money nowadays is created by banks/federal reserve. Basically money is created out of thin air when someone takes a loan. The one lending you the money often doesn't even have the money in the first place, but they just write some digits on your bank account. You then are in debt, but as soon as you repay you debt (to someone who never had money to begin with) the money just ceases to exist (because it never existed in the first place). On top of this the interest you are supposed to pay will destroy even more money. So basically if all the countries would pay their debts, there would be no money left and there'd still be a debt left. Eventually the problem will become so big that countries (and people) need to borrow even more money just to pay the interest on their loans, and if they can't even do that anymore than hyperinflation happens and that's how empires fall. This is why the economy is so bad and this is why bitcoin was formed as a solution to this problem (corrupt monetary system).
7 quipstickle You know when you go out with a group of friends, but you don't have enough change for that last drink and some buddy buys you one, so you say "I owe you one", but then you never actually pay them back. Lots of that.
1 lmolari I suggest you to read the book One Trillion Dollars. Its a book written by a non-economist. Its a novel. But he does his research very well. Most of his perspectives on how money really works are denied by economist. Just look at the most upvoted, first answer. They tell you as a source for this money the "Federal Reserve" or "The People" and so on. And they tell you about inflation and all this stuff. But ask yourself a question. Who is telling the federal reserve what to do? Who owns the federal reserve? And who is determining the inflation rate? Who sets the dollar price? Right. Its the same institution that is "lending" the money. So reality is that the influence of money on the economy is not beyond their control and can be easily manipulated. Ever heard the US telling china that they need to stop to artificially manipulate their currency? Well, the US is doing exactly the same. Most countries do it to some degree. There is no existing stackpile of money they lend something from and those bonds people buy are also no source of unlimited money. Reality is that money appears out of nothing. Simplified: Someone types a number into a computer and it appears in the governments bank account. That's it. No magic source or anything. This money just appears and they are going to pay it back - to themselves - with a very low interest rate. At the same time they use this money to pay for all kinds of services and people. This people then buy stuff, pay taxes and suddenly the money starts to work. Truth is: By taking loans, Governments even earn lots and lots of money and that's why a certain amount of public debt is even a good thing.
2 AcidicOpulence Privately owned banks would be the shortest answer possible, however just typing those three words will ensure that this response will get rejected. I guess then your next question would be why does the world run on a system where a private individual or private company get to be in this position in the first place. The short answer to that would be cunning and history or more accurately time. Then you have to wonder what mechanisms keep this system in place. Bread and circuses is probably the shortest answer there. Now keep working, because everyone knows if you don't you are despicable and horrible and a no gooder. Keep paying off your debt be and economic contributor. Otherwise you will be arrested, if you haven't broken a law, we can pass one to ensure you will.
3728 0 cchoe1 You can borrow from your own people. The money that is printed is **FEDERAL RESERVE** (thanks for the corrections) notes--it's *technically* a debt that the Reserve owes the bearer of the note (but printing money does not technically increase the debt supply--the role of money has changed since fiat currency). When you print more money, you are devaluing the rest of the currency that is already in circulation. This means that if the govt decided to print $100,000,000,000,000,000 (1 quadrillion dollars) in the span of a week, the value of the dollar would probably crash pretty hard (probably...). This is related because people use money to buy US debt--we're loaning the US govt the very money it prints. The only reason that this results in anything favorable is because people all over the world value USD and that paper currency represents potential labor, new assets, etc. If you own a baseball card of Sammy Sosa, there is a chance it could be worth a lot of money. Now imagine if the card company just mails a Sammy Sosa card to every family in America. Your Sammy Sosa card isn't worth anything anymore because there are so many of them and everyone has it now. Now imagine if they mailed another 5 to everyone--the value crashes even harder because there are SO many of them now. That's the same idea with money. You can't keep printing more money or else the value of it will deteriorate. But the gov't keeps issuing more debt and we still look at $20 like it's $20, right? Eventually, there could come a time when we look at a $20 bill and it means nothing to us. This is what happened in Zimbabwe where a billion dollar transaction might happen for a loaf of bread. They printed so much money (without proper secure backing by the gov't) that it just became worthless. So they started to just increase the numbers on their currency so you can actually pay for something. Because the gov't theoretically owes its population money, they issue paper as a certificate of this. You might not have physically went to the bank and traded something in return for paper but you did something that warranted the earning of that dollar. If you work for a company, they pay you that money because it has value and you can buy things with it. The only reason it has value is because the US gov't says it does. You can pay gov't-related fees and bills with the money they issue and because the gov't is well-secured, people accept it. If our gov't was unstable, no one would trust the dollars they slept under for warmth because the gov't could just come out and say, 'Sorry we're not paying you guys back'. Well what would they be paying back? To whom are they paying back to? It used to be gold. But as we grew as a planet, we ran out of gold to back every dollar with and it just became a nightmare to handle. Enter, fiat currency, a piece of paper that means nothing except what the gov't says it means. People used to go to banks with gold and receive 'money' for it. The banks would literally hold their gold and give them an certificate that says they own a claim of gold in their vaults. If ANYONE brought that certificate to the bank, they could expect to receive gold for it. That's what gave it value. You could say you want that farmer's potatoes and he can go get $1 of gold from the bankers at his convenience or he could hold onto it and use it just like the person did before him--'trade' it for something else like new shoes. Why? Because everyone liked gold and everyone believed gold had value. Eventually, this took off and people stopped trading for things and we developed currency with quantitative values that allowed for easy exchanges to take place. So you might think, 'Well, now that there isn't gold behind my dollar, how is it worth anything even if the gov't say it is? They won't give me anything in return for it". The same thing applies to gold. No one wants gold unless other people want gold. If you can't reasonably trade your gold for something else, then what value does it have? (Someone did point out you can shave gold flakes into your water and drink it, like some companies have chosen to do, but that's on you) As long as people continue to value dollars, it doesn't matter what it's worth, sans some certain supply and demand laws. So gold is no different in that regard. The ONE difference between paper currency and gold is that $100,000 in cash weighs a lot less than $100,000 in gold and is a lot easier to hide too. EDIT: I made some slight revisions to correct errors and to try and relate things better to the main topic at hand. Sorry, I kinda started rambling. I have also posted below in response to u/penny_eater to correct my errors and explain them in a little bit further detail but it kinda strays away from ELI5 territory. This kinda seems all over the place but it should be good starter information for someone trying to understand debt markets and macroeconomics, in general. Monetary supply and debt are pretty hand-in-hand, even if they're not exactly the same thing. Larger and more complex economies warranted the development of fiat currency which ultimately changed the role of currency, in general. It no longer represents a claim, per se, but it represents value because the gov't says it has value and will accept it for gov't related transactions and business with foreign entities. Also, don't get me started on the petrodollar. ------------------- **Sorry I wanted to just double clarify. My main answer to the question "Who does the US Gov't borrow from?" was "It's own people". My money talk (everything after that first sentence) was just to lead into the topic of increasing debt, economics, and the value of this debt in the coming future. ** I thought "It's own people" would be a sufficient answer to that but started to get into the reasons why that is starting to look like a bad idea especially in our current economic environment.
2511 0 flooey There are a whole bunch of sources. The major ones are: * Themselves. One of the major holders of US government debt is the US Social Security system, for instance. * Other countries. You can simultaneously owe money to someone and be owed money by them, and there are a few countries (eg, some of the major oil producers) that are net lenders. * Non-governmental entities. Retirement funds, personal investment accounts, corporations, etc, all purchase government debt because it's one of the lowest risk investment options available.
288 0 yes_its_him Lots of people want to loan money to governments, since they are likely to get their money back. So that all counts as government debt. If you invest in a government bond fund, you are loaning money to the government, and contributing to the debt. Governments have a lot of assets that they don't keep on their balance sheet, too. The US could pay down the debt by selling off government land, they way they already auction off mineral rights, spectrum licenses, etc.
80 0 cashm3outsid3 anyone! for instance in the US they'll have debt auctions where usually financial institutions will place bids on debt. Some of these institutions will be retail banks and they offer them as investments to everyday people. To understand bidding on debt here's a simple example: The US govt says they will pay $1000 to someone in 5 years. What's it worth to you? For the US govt there is basically a 0% chance they won't be able to pay that $1000 so maybe they can sell that promise for $950 today. They'll do with with billions of dollars on a regular basis.
455 0 ArminiusGermanicus Here is a breakdown for US debt: https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 I am surprised how much of it is owned by government agencies. The small Cayman Islands owns $254 billion of US debt. Sounds totally legit, lol.
40 0 Alberius One another, their own people. What most people fail to realize is that the global economy is what is called a "faith based" economy. Basically the money doesn't actually exist and is worth exactly as much as people think it is. This is why after 9/11 it was so essential for the US government to get people going out and spending again and to get wall street betting again. Without constant faith in the economy it inevitably will crumble. This system works fairly well but all you need to destroy a country is for its people to lose that faith which is one reason why Greece is in such a massive shit storm right now.
47 0 sirgog For the United States, the biggest owners of the debt are private American citizens. Other big sources are loans from one government department to another, money outstanding for work performed by government contractors (e.g. if the US state pays ABC Corporation $27 million for constructing a road, that $27 million becomes debt from the time contracts are signed until the final payment is made), and the sovereign wealth funds of other countries.
62 0 stereoroid Some rich countries such as Saudi Arabia and the UAE have "sovereign wealth funds" that invest heavily in other countries e.g. buying US Treasury Bonds is basically buying US debt. Rich individuals are also in the Bond market via investment banks.
18 0 8Milesofshade **tl;dr:** They are borrowing from banks. When a loan is taken out, money is created out of thin air. The borrower is able to spend money that didn't exist before, and the lender is able to create profit for themselves (interest) quite literally out of thin air. The borrower also now owes the lender something that didn't exist before. Neat! This is one of the cool things that happens in a fractional reserve banking system. Fractional reserve bankers can do cool things that other people aren't allowed to, like loan out things they don't actually have. A bank is only required to actually have a certain fraction of the money they loan out. This smaller amount is called the reserve amount. Example: Bob has a tool rental company. He rents out saws to people doing construction work. Bob has 20 saws, and charges $10/day to rent one. The most Bob can make is $200/day. Bob's friend, Mike, is smarter than Bob, because he owns a fractional reserve tool rental company. Mike only had to buy 20 saws, but through the magic of banking, he's able to create 190 saws out of thin air, so he can rent out 200. Mike can make $2000/day.
21 0 Berkamin They are borrowing from central banks that issue brand new money out of nothing to buy bonds. These bonds must then be paid back with not only the money issued out of nothing, but with interest. The money for the interest wasn't created as part of the initial loan, so it either comes out of the general money supply, contracting the money supply. To counter-act that, the debt ceiling must be raised, and more new debt-money must be borrowed to service existing debts, in an never ending cycle of escalating debt. To a certain extent, the borrowing does come from bond buyers other than the central bank, so not all of the money is newly issued, but the vast majority of the money is newly issued. That's why we have inflation; the purchasing power of money itself is a matter of supply and demand. If the money supply didn't constantly grow due to more money being issued out of our debt cycle, we couldn't possibly have inflation because there would be a fixed amount of money. I'm sorry it's such a depressing answer, but this is the way it works. See the documentary "Money as Debt", along with the follow-ups addressing challenges, such as the matter of stock and flow. [Money as Debt (2009)](https://www.youtube.com/watch?v=0taBYaB_Zh4&list=PLdMxiaZGboJSgU2raUksCFGSUfWS8eHR8). Also see Money as Debt II and III. **EDIT** The system of bonds to finance public spending is another way they raise money via debt, but it really ends up becoming a giant engine for redistributing wealth from the everyone to the rich, who are the only ones buying bonds. Governments issue bonds (debt) when they can't muster the political will to raise taxes to fund spending. The only people buying bonds are the investment class, usually the top 10% wealthiest fraction of our economy, with the buyers skewed disproportionately to the wealthiest institutional buyers. However, our taxation system is so full of loop holes and our states are so dependent on sales taxes (which disproportionately burden the poor and the middle class) that when these bonds are ultimately paid for by taxes (plus interest), the effect is to take revenue from sales taxes and state income taxes and to give it to bond buyers (the rich).
24 0 faaaks From each other. Lets say you and two other friends are sitting in a circle. Friend 1 says let me borrow a dollar. You then lend him the dollar. Friend 2 asks friend 1, let me borrow a dollar, and then hands him the dollar you just lent him You need a dollar and so ask Friend 2 to lend you his dollar, giving back your dollar. Among the three of you, you have three dollars worth of debt only generated by 1 dollar worth of actual value. The cycle could continue, creating very large debt for very little real value in the small 3 person economy. The same is true for countries. They borrow from each other, who lend out their borrowed money, who lend out their borrowed money creating far more debt than actual value in the economy. Creditors are debtors to different creditors. Debt is a web of payments and it allows our economy to grow quickly. The downside is what happens when a major debtor cannot pay back their creditors? Suddenly their creditors cannot pay back their own creditors and so on and so on... And that is how we get "too big to fail." Letting the banks fail in 2008 would have been a catastrophe because of the network debt payments.
33 0 Basedeconomist Lots of great responses here about individual nation's debt. If we are thinking globally, the simple answer is we are borrowing from the future. It is a pretty safe bet. We have shown increases in productivity, the ability to tap more natural resources, and decreases in overall production costs as technology and innovation continues. Currently we have 7.1 billion exoflop level supercomputers, online, working in each of their own ways at bettering themselves and humanity. Hundreds of thousands more come online each day. It is unlikely these processors fail before they begin to work on tougher problems. Menial tasks, such as finding a power source, are also becoming less and less of an issue as absolute poverty is being reduced. I'm talking of course about human minds, reductions in infant mortality, and the ability to think about bigger problems than our next meal. TL;DR:The future looks more productive than the present. Luckily through financing we can move some of the wealth of tomorrow, into today.
20 0 Insert_Gnome_Here Imagine you're a government agency and you want to build a road bridge across some river or other. Given your budget, you'd have to wait five years to save up enough for the bridge. What you do is you get a construction company to build the bridge, but give them an IOU that you pay back over five years. You calculate that the interest you will end up paying on the loan is less than the value of the bridge over the five years (through tolls and/or boosting the economy). This way of doing thing means that the government is constantly in debt. It allows the government to be more efficient, but it does have certain [downsides](https://en.wikipedia.org/wiki/Economy_of_Greece).
29 0 -domi- If i was a governmental figure in a small, corrupt nation, while my cousin owned a business, i could buy a thousand dollars worth of his product uprated to a million dollars on behalf of my government. Now the market rules no longer apply. If i was a small government that badly needed an influx of money to fend off, say, famine. A big international lending entity comes up and says "we will give you rice money, at 100% interest." In the name of my people's survival, i take it, then never pay it back - debt just grows through the roof and into outer space with zero chance of relief. In short, there are many ways to generate baseless debt, this shouldn't surprise you. I still owe my brother a million dollars for this one time when we were kids and he gave me half his chocolate croissant if i agreed to pay $1M. He can take my ass to court, though, fuck the police.
11 0 vitriolic_amalgamati Okay, so, say it's the end of the month. You owe money on your VISA card and it's time to pony up. But you don't have the money. What do you do? Easy. You sign up for a Mastercard and pay off the VISA with the Mastercard. But what if Mastercard was running low? Eh... can they just take out a loan from VISA? YEP! HELL they've been doing it for a while now, sure it's a bigger amount and riskier loan than last time because not only do they need that loan to loan out at higher rate to You for profit but they also need more on top of that to keep their business afloat, so the interest rate on the loan is a bit higher than last time, but who gives a fuck?! WE CAN DO THIS FOREVER RIGHT?!? right? WAIT! What if this has been going on for a long ass fucking time and interest rates are so high that we reach a point in this cycle of debt transference where VISA was also out of $$ to cover their last loan payment and needed to wait for you to pay them back before they have any $$ to loan out to Mastercard, which Mastercard needs to give to you so you could pay back $$ to VISA which they need for Mastercard?? OMG IT'S LIKE SOME KIND OF MEXICAN STANDOFF!!! IS THE SYSTEM GOING TO IMPLODE ON ITSELF?!?! WELL NOT RIGHT NOW. Because of their gigantic brains, VISA knows it'll have money when you pay it but that will only happen after it needs to pay Mastercard. So, it'll simply just print out a bit of extra money that shouldn't technically have any actual value (sort of like printing counterfeit cash, except instead of your mom's photocopier, the cash gets created the normal way, through the mint, making it completely identical to the national currency already out in circulation SO NO ONE CAN EVER KNOW THE SHAMEFUL DIFFERENCE) and besides, it's only a little bit that didn't exist before, just to get over this little hump so who cares right? And this way we get to keep on existing without our civilization collapsing, but what's the actual cost? IS THERE EVEN A DOWNSIDE?!?! YEAH THERE IS. Each time they slip a little bit of valueless denominations of national currency into circulation, everyone who has any of that country's currency ferreted away, those $$ will become a bit less valuable... even if it was hidden under their mattress the entire time. HOLY SHIT INFLATION IS A SNEAKY MOTHERFUCKER In this metaphor VISA, Mastercard and You are every country in the world! And the circlejerk of debt is sustained. Everyone congratulates each other on being so smart. The cost of which was merely a bit of inflation to the national currency. So the system IS technically imploding on itself but more slowly now as long as it can print out a bit of "official" money that just siphons off a bit of value out of everyone else's $$ and as long as the national currency's value is strong enough to survive the inflation and not become too close to valueless (which is slowly/very quickly happening to everyone's national currency) at least it will survive for now. Does anyone even really care that's partly why things are twice more expensive today than they were 20 years ago? WELL SOME SURE AS FUCK DO. Sure, it's a quick easy way to force people to pay the price of the country's sloppy business practices. BUT they're aware of it. They're pissed off so much that they have such high income taxes that on top of it the fucking $$ they worked their asses off squirreling away for retirement is losing value faster than they can make it, why should they have faith in their national currency as its slowly imploding on itself and taking away the value of their hard earned $$ with it A decentralized alternative global currency controlled by a protocol, protected and enforced by everyone at the "bottom" with a strict finite amount to ever be created gets developed by malcontent computer scientists as a means of getting off national currencies as a big fuck you to VISA country for abusing their finances. It increases in value as hard and fast as there are corrupt governments in the world that freely try to fuck over their own people Suddenly people who had enough of their national currency's inflation problems are trading it in for a world-first globally supported currency and not even the most corrupt countries have any feasible way of swaying the ebb HOLY SHIT THE TABLES HAVE TURNED MOTHERFUCKERS and that's why bitcoin is up 400% since January But yeah, to answer your question, our countries are basically paying off the VISA with the Mastercard
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8 0 robertmdesmond They borrow the money from bondholders who purchase the government's bonds which represent the promise to repay the money. The U.S. Treasury will issue T-bills or Treasury Bonds and offer them for sale to buyers. In the case of the U.S. debt, the primary bondholders are the Federal Reserve and foreign countries like China, Japan and others. [Here is a chart.](http://money.cnn.com/2016/05/10/news/economy/us-debt-ownership/index.html) But anyone can own them. When a country finances current spending with debt, they obligate future generations to repay it. That arrangement is not as one-sided as it first seems: The current generation leaves behind technology, innovation, science, research, infrastructure and investments that benefit all future generations but the current generation will never benefit from.
10 0 FlexGunship In general, the most literal answer is "the future". Since governments are not productive entities (they don't build cars, or operate movie theaters) they sell debt for future repayment. Taxation is generally the source of repayment of debt. So taxes go up as more debt is taken on. If 20% of all taxes go to pay interest on debt and the country borrows another 5% then taxation in general will go up to cover the interest on that new 5%. Asked another way, who owes the debt you take on a loan? Future you. Who do you owe it to? Yourself! So you can pay your loan in the future. **You are borrowing from your future self to take a loan out today.**
6 0 PM_ME_YOUR_THESES First of all. The country is not in debt. The government of the country is. The government is usually the largest organization in each country (though that's not always the case), and it is also very influential in each country. But national debt is not the sum total of debt of every individual, organization, company, or government in a given country. It's just the debt of the "main" (what the US calls "Federal") government. So, the government borrows from other governments, or from private individuals both in their own country and abroad. When people say that "China owns $x billion of US debt", they mean that the Chinese government owns IOUs signed by the US treasury worth so many billions. But there are more chinese private entities (companies, corporations, people) who own many more. It's worth noting that US government debt is the safest debt in the world and so everyone wants to loan money to the US, regardless of how deep in debt it already is. The US owes money to all sorts of people and organizations from all sorts of countries around the world.
3 0 slo1111 Gov issues a bond which is a promise to pay the amount borrowed plus interest. Just like any loan the interest rate is set by the perceived risk of getting paid back the loan. Banks, financial institutions, mutual funds, hedge funds , insurance companies and even other countries buy bonds issued by governments because they are perceived low risk in comparison to other investment options. If you were to suddenly have all countries stop issuing and pay off their bonds there would be trillions of dollars that needs to find a place. If they leave it as cash inflation eats away at the value. If it goes into stock market it is easy to lose value, too risky. The bonds issued by countries plays a valuable role in today's world. They of course do carry some risk depending upon a countries fiscal state.
3 0 craephon I can't believe none of the top comments mention FUTURE GENERATIONS. Eventually printing money and debt catches up and punishes, severely, those in the future still alive to have to deal with the consequences.
5 0 cameljocky26 The future, they are borrowing money from the future, and are reaping the rewards of the loans now, but sacrificing future generations with the debt, that's why a lot of people see national debt as unethical.
6 0 LurkerLuo There's some good answers here, but in my skimming I didn't see any that mention this. No matter what the vast majority of countries will never be out of debt. Most country systems are built on debt. Central Banks are private entities that loan money to government with intrest. The government needs to make more money than it was loaned to pay back the banks, but in order to do that they need more money. So, they have to borrow from the bank again with intrest. And the cycle continues. Politicans could abolish the system, but it would mean an end to easy money so they are not so eager to do so. If you're intrested check out the books End the Fed by Ron Paul and The Creature from Jekyll Island: A second look at the Federal Reserve by Edward Griffin. They go into way more detail that a five year old would probably not understand.
3 0 wonder590 Each other, themselves, companies, and private citizens. Its important to note that debt for a country is not the same as debt for an individual. Countries can leverage debt and not pay back the entire amount upfront. Investment in the government bonds solidifies faith in the countries continued exsistence, and as long as the debt doesnt exceed a certain threshold of the countries GDP and the country makes its payments on time, the debt actually provides for healthy financial security for the country.
2 0 SunnyWaysInHH Capitalism is not a zero sum game. Most credit/money just comes from nothing to invest into future growth...what??? I ll explain: If a bank gives you a 1000$ loan, they don't lend you money from other people or their vaults, but just book 1000$ on your bank account. That's it. Money just appears from nothing. Then you work your a** off and one year later you will have given the bank 1200$ back. So the bank invested into your future work of 1000$ and has earned 200$. Banks are usually allowed to give credit ten times their own worth. (The same goes for central banks btw). Of course their are other lenders. America's own citizens, rich people, other rich countries, banks. But the loans which float around the globe are much higher than what people and countries actually own. They must be. Otherwise capitalism would collapse. It depends on growth and growth can only happen, if you bet on future growth. What??? I ll explain: A capitalist owning a factory needs new machines to produce more stuff more efficiently. He lends money from a bank which the bank just creates out of nothing, then he can invest and produce more stuff and gives the money back to the bank three years later with interest. The bank bet on his future growth and won. Crazy, but that's the world we live in. During the housing crises the banks lost the bet by the way and therefore then collapsed. Because the bet was irresponsible. It's that easy. Seriously.
4 0 IronBear76 The government of the countries is borrowing from individual people and companies. When someone buys a government bond, that bond is debt from the point of view of the government. That is the simple answer.
2 0 DisparateNoise There's a lot of investible assets in the world, like a lot a lot. One estimate is 241 trillion. That said, world sovereign debt is around 60 trillion. What that number really means is all the governments of the world have run 60 trillion in deficits since they began issuing debt. Some of those deficits are picked up by internal organizations, like SS, which pays for the debt with a payroll tax. The rest is picked by external investors: other government s, banks, mutual funds, et cetera. Bonds are a really safe place to keep money while technically also making a profit, so when people or organizations are looking to diversify their investments they buy them to secure other investments. This does have its negative side effects however. Large amounts of extremely safe investments can drain the supply of money to other, also safe but more economically productive investments. This is bad because it means those safe investments have to raise their interest rates, effectively raising the "price" of capital. This retards the overall growth of the economy. So long as more wealth is generated by the economy to invest, debt can keep going up, but if the supply of debt outpaces demand... Well it would be pretty bad to say the least.
8 0 OH_Lawman What if I told you that "modern" debt is an imaginary creation made up by the worlds richest banks, individuals and private investment groups. Those who control 90% of the wealth of the world. That also control the "worth" of "insert your currency here" and that all governments including the US government are enslaved to because it's where they borrowed the money from.. And that not a single cent of your tax money goes towards the debt or to the better good. And that the money is used to pay off the governments debt to the banks and private investors etc. There is a reason we no longer back the US dollar by gold... Read the book, "The creature of Jekyll Island" G. Edward Griffin.
3 0 OverlySarcasticDude While most people have covered the main points, one many people seem to have missed is the fact that much of the debt it owed to itself and can be paid back by far less money than the actual debt is worth. To massively simplify things, say we have Jim, Bob and Sam. If Jim lends Bob £5 it is all pretty simple. Bob is in £5 worth of debt to Jim. However if Jim lends Bob £5 and also Bob lends Sam £5 we have 2 people with £5 worth of debt and a total debt of £10 Despite having £10 worth of debt, it can all be paid off with a single £5 note. Now if we continue the above scenario with further down the line Sam lending Jim £5, everyone is in debt of £5 with a total of £15 of debt in one big circle. (I am kind of ignoring whether people are considered to be in credit here) Now imagine increasing that across all 200(ish) countries and other governmental ventures and having transfers being fired in every direction this gets very confusing. Add to the mix that countries investments in others are often targeted (e.g. Investments in infrastructure, oil, defence) means that using existing investments simply to pay off a debt isn't always an option. TLDR: The debt values are compounded and a huge over estimate of total debt
3 0 cegu1 Thin air. More complicated: from the future - promise that economy will grow and your sons and grandsons will have no problem paying it back as long as economy grows exponentially (xy percent per year). We will soon need 10 more planets to suistane this system.
2 0 Luke4_5thru8KJV The oligarchs of the world own the sovereign debt, and constantly steer government policy so that governments go into ever more debt. War is the best creator of debt, so the oligarchs instigate wars and then lend to both sides. The Bible warns against usury, and if we had listened to God and his only begotten son, Jesus Christ, for the last few thousand years, then we would not be in this mess. In Europe, usury was banned for a thousand years, which are now called the Dark Ages, since history is written by the winners. Spoiler alert: When this house of cards we call the global economy collapses, and a new world currency arises which requires biometric access from a mark in the forehead or on the right hand, don't take the mark.
3 0 Art9681 They are borrowing from the future. Hope and trust is what keeps our economy alive. Hope that future technologies will make enough profit to pay for past debts and trust that future humans will invent them.
9 0 SuperDope54 Central Banks, around the world are owned by 13 families. These Central Banks have the licence to print money. They can effectively print money all day and just increase the liquidity, thereby increasing the money in circulation, while the debt to repay/service the loans are laboured/endebted to the taxpayers - I.E. you, me and the common working-class people.
1 0 zeidrich Lets consider what Debt is to start with. When a government wants more money, one of the things that they can do is sell a promise to pay back more money later. This is a treasury security, or a bond. Bonds work like this: You pay $100 now, and you get your $100 back in 2-10 years. On top of that you also get interest periodically. Bonds are popular investment because unless they are a promise to pay back your entire principle, unlike stocks they can't go down in value. And the interest rate is fixed, so if the interest rate goes down after you've bought them, you still get paid interest on the old value. The only risk then is that the value of the US Dollar would go down, or a failure of the US treasury to pay. The next way that they can get debt is through selling something similar to the government itself. I'm going to ignore this for now even though it's a very major part of the equation. But let's look at purchasing treasury securities. Organizations use credit for all sorts of things. I can buy a $10,000 gadget and sell it to my customer for $13,000 but I don't have money. If I borrow $10,000 from someone, buy the $10,000 gadget, sell it to the customer for $13,000 and then repay the lender $10,500 shortly after, I'm $2,500 ahead, and the lender is $500 ahead for that loan. The US government can do that too, but who can loan money to the government? What does that even mean? How do you loan the treasury its own money? Instead, it decides what kind of value it can get from borrowing money. The previous example, if the lender wanted to charge $3,000 to loan the business $10,000 the business wouldn't be willing to do it. If the business was only willing to pay $50 in interest for the $10,000 loan, he wouldn't find anyone willing to lend it to him. Lets say instead of the business we're talking about the government. Now instead of going to a lender and asking to borrow $10,000 they say "Anyone who wants to can buy some $100 bonds, we're selling up to 100 of them. Every 6 months we will pay you $5, and after 2 years we will pay you back your $100 and stop paying you interest." This gives them the means to repeatedly make this transaction. They choose an interest rate low enough that they get value from borrowing the money, but a rate high enough that people are interested in buying them. The amount of money that they think is valuable to borrow without causing too much risk is called the debt ceiling, and limits how many of these they can sell. If the government could sell one of these widgets every 4 months, and took 2 months to get paid for each of them, there's no reason to sell more than 100 of these bonds for this purpose because they're never doing more than one of these transactions at a time. Selling too many would just mean having to pay more interest to have cash that you don't plan to use. Just about anyone can buy these as long as they're for sale. The US economy is pretty safe and the US dollar is pretty strong so it is a safe way to invest. It's not so much that they're borrowing money, but that they're selling promises.
6 0 Sorokin45 The idea of bitcoin is really interesting for this matter. Only a certain amount were made and no more can be made but they can be mined and broken up in further fractional pieces.
3 0 gomountainguru The future. We're borrowing money from individuals and institutions that expect we'll be able to pay them back with interest eventually.
2 0 zimmah Most money nowadays is created by banks/federal reserve. Basically money is created out of thin air when someone takes a loan. The one lending you the money often doesn't even have the money in the first place, but they just write some digits on your bank account. You then are in debt, but as soon as you repay you debt (to someone who never had money to begin with) the money just ceases to exist (because it never existed in the first place). On top of this the interest you are supposed to pay will destroy even more money. So basically if all the countries would pay their debts, there would be no money left and there'd still be a debt left. Eventually the problem will become so big that countries (and people) need to borrow even more money just to pay the interest on their loans, and if they can't even do that anymore than hyperinflation happens and that's how empires fall. This is why the economy is so bad and this is why bitcoin was formed as a solution to this problem (corrupt monetary system).
10 0 quipstickle You know when you go out with a group of friends, but you don't have enough change for that last drink and some buddy buys you one, so you say "I owe you one", but then you never actually pay them back. Lots of that.
1 0 lmolari I suggest you to read the book One Trillion Dollars. Its a book written by a non-economist. Its a novel. But he does his research very well. Most of his perspectives on how money really works are denied by economist. Just look at the most upvoted, first answer. They tell you as a source for this money the "Federal Reserve" or "The People" and so on. And they tell you about inflation and all this stuff. But ask yourself a question. Who is telling the federal reserve what to do? Who owns the federal reserve? And who is determining the inflation rate? Who sets the dollar price? Right. Its the same institution that is "lending" the money. So reality is that the influence of money on the economy is not beyond their control and can be easily manipulated. Ever heard the US telling china that they need to stop to artificially manipulate their currency? Well, the US is doing exactly the same. Most countries do it to some degree. There is no existing stackpile of money they lend something from and those bonds people buy are also no source of unlimited money. Reality is that money appears out of nothing. Simplified: Someone types a number into a computer and it appears in the governments bank account. That's it. No magic source or anything. This money just appears and they are going to pay it back - to themselves - with a very low interest rate. At the same time they use this money to pay for all kinds of services and people. This people then buy stuff, pay taxes and suddenly the money starts to work. Truth is: By taking loans, Governments even earn lots and lots of money and that's why a certain amount of public debt is even a good thing.
2 0 AcidicOpulence Privately owned banks would be the shortest answer possible, however just typing those three words will ensure that this response will get rejected. I guess then your next question would be why does the world run on a system where a private individual or private company get to be in this position in the first place. The short answer to that would be cunning and history or more accurately time. Then you have to wonder what mechanisms keep this system in place. Bread and circuses is probably the shortest answer there. Now keep working, because everyone knows if you don't you are despicable and horrible and a no gooder. Keep paying off your debt be and economic contributor. Otherwise you will be arrested, if you haven't broken a law, we can pass one to ensure you will.