Glossary/National Debt

Glossary | Concepts | National Debt

'House' Definition

National debt refers to the total amount a government owes, primarily through bonds, which are denominated in its own currency. For governments with a high degree of monetary sovereignty, this debt is not a burden, as they can always create the money needed to meet their obligations. National debt represents the private sector’s net financial assets, meaning money created by the government but not yet taxed back.

Other Definitions

In mainstream economics, national debt is the accumulation of government borrowing, primarily from the private sector and foreign lenders, through the issuance of bonds. High levels of national debt are viewed as problematic, potentially leading to higher interest rates, crowding out private investment, or requiring future tax increases. It is regarded as a burden on future generations, and careful management is considered necessary to avoid fiscal crises.

Discussion

MMT argues that for countries with a high degree of monetary sovereignty (e.g., the U.S., UK, Japan), the size of the national debt itself is not inherently problematic. The key issue is whether government spending exceeds the productive capacity of the economy, which could lead to inflation. MMT views national debt as the private sector’s untaxed savings, and insolvency is never a concern for a currency-issuing government.

In contrast, orthodox economists worry that excessive national debt can lead to higher interest rates, inflation, or a loss of confidence in a government's ability to manage its finances. They emphasize the need for balanced budgets and debt reduction to prevent fiscal crises.

Examples

Historical Debt Outstanding of the United States

The National Debt of Japan

References

• Mitchell, W., Wray, L. R., & Watts, M. (2019). Macroeconomics. Red Globe Press.
• Kelton, S. (2020). The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. PublicAffairs.
• Mosler, W. (2010). Seven Deadly Innocent Frauds of Economic Policy. Valance Co.