Why does government debt equal private assets?
and another question: why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free?
and another question: why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free?
Not that I fully agree with his assertion, but: Gov't debt usually takes form of `bonds'. Such bonds are issued for fixed terms and traded on free market. Both private and institutional investors (including other countries) invest in bonds, thus some of gov't debt will normally be in hands of private investors.
Government bonds are considered highly secure and reliable means of investment, if somewhat low-yield. That allows the issuing country to rely on bonds for matching income to expenditures any time it needs to, at rather low cost. Should a country declare bankruptcy, or just near it, this instrument is much harder to use for the govt.
Consider having a look at http://en.wikipedia.org/wiki/The_ascent_of_money which covers the topic pretty well.
Axiomatically, if you sum up over all worldwide assets and liabilities, they sum to zero. That is a fact that simply follows from accounting. So the world as a whole is (net) debt free (until we start trading with extraterrestrials, then things might change).
The US probably is roughly net debt free on average, summing over all domestic private and government assets and liabilities. I don't have time to run the numbers right now. Certainly, even if the US is not debt free on average, its net debt towards foreigners is much less than the government debt, and also less than the sum of government debt held by foreigners.
If people just stopped looking only on one side of the coin, they would realize that and chill out over the government debt.
Do you understand how easy it would be to judge how a government performed by comparing two of these? And ask all the right questions, exactly as MS investors do with the "developers, developers, developers" CEO?
Here is a summary position and you can find the rest on the site http://www.treasury.govt.nz/government/longterm/fiscalpositi...
All governments should do this....
I seem to remember it was partly prompted by a new government wanting to prove they were fiscally responsible, but also I think there has always been quite an awareness as there is a huge earthquake reconstruction fund (now entirely in external assets) in case of disaster, which would prompt some thinking about assets and liabilities.
Actually, it might come as a surprise but Greece seems to have a lot of public assets which would give it a much better clear position than many other countries in Europe if they were to be compared.
However of course, it is no secret nowadays that even with a great clear position, if cash flow is not positive you may easily go under.
The interesting thing is that a monetarily sovereign government actually sets its own interest rate, via monetary policy: the interest paid on US treasuries is ultimately a function of the interest rate set by the central bank, i.e. it is a political choice.
This is initially unintuitive, but it follows from developing an understanding of the system from first principles, as is done by Modern Monetary Theory. You can read about it under the heading "What role does the bond market play in all of this?" in this article I already linked to elsewhere: http://pragcap.com/resources/understanding-modern-monetary-s... and also in Randall Wray's book "Understanding Modern Money".
Quite a number of economists in the MMT line of thought actually argue in favour of letting the interest rate drop to zero, and using fiscal policy instead of monetary policy for inflation targeting.
In other words, government debt does not need to be a way of taking from the poor. It is that way as a result of political choice - though I do not think that it was a conscious choice, since people have not really internalised how our monetary system works these days.