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Why do western governments need to borrow money?

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Why do western governments need to borrow money?

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  1. Because most revenue comes from taxation, people are understandably concerned about having large reserves.  It's politically unpopular for the government to collect a large reserve fund.  Some of the reasons are that we think if there is a lot of extra money laying around, the politicians will think of ways to spend it, usually in ways that are designed to curry favor with voters they need to get re-elected.   Another is that people would rather spend or save the tax money for their own personal benefit, that would otherwise go to the government to build a surplus reserve.   And the third reason might be that its very easy for the government to borrow money whenever they need it.  So emergency situations can be met with deficit spending, there is no fundamental structural need to carry a rainy day surplus fund.

    Another consideration is that it has been effectively shown, at specific times in history, that deficit spending can result in a stimulus to the economy that more than pays for the interest costs of borrowing the money.  the problem is that once the governments get used to borrowing money, and the people understand why it can sometimes be beneficial, we lose the discipline to only borrow at the appropriate times, and we end up borrowing almost all the time, for things that should not be paid for with borrowed money.

    Those remarks kind of set the stage for how come it is legitimate to borrow money at certain times, because citizens wish to manage their own money, rather than trust the government to do it for them, and there are certain times in the economic cycles where borrowing is financially prudent.

    So assume that everything is running correctly.  The government runs a modest surplus in good economic times, and it borrows to finance public works projects during slow periods to help boost the economy and provide jobs etc.  This is the Keyensian economic model.    It works pretty well, IF your politicians have the discipline to follow it carefully.  History suggests this is nearly impossible for the united states.  It took a man like Bill Clinton, who was a true genius, surrounded himself with the brightest minds, could talk his way out of anything, and happened to hit the perfect time in the economic cycle to institute centrist fiscal policies while appearing to be left leaning to get enough votes from the left, and benefited from a third party candidate.  It simply can't happen intentionally in most political situations.  but it did, and we got a balanced budget, and ended the welfare state that had persisted to the detriment of the underclass for so many years.

    Now, things were going so well under Clinton, that some morally depraved individuals got behind a nice enough guy named George W Bush, who's father had been a pretty good president, and financed him to the hilt and bought an election.  Cheny ran the government, and proceded to give away the national treasury to the energy companies and war profiteers.

    So here we are.  You can elect a guy who won't even come close to balancing the budget, based on all the promises he is likely to have to make to get enough of the populist vote, or the guy who is in deep with the same criminals who brought us just about the worst 8 years on record in terms of financial and operational management of the country.

    I'd go with the first guy.  At least he is honest, as far as we can tell so far.

    Oh, back to your question.   We should borrow money when we have an emergency, since money in the hands of the citizens is far more productive than money held in surplus by the government.  Our standard of living is much higher if we have a balanced budget in good times, and we allow a deficit when times get tough.  But we have to pay it back when things get good again, by allowing the bonds to mature and not issuing new ones.


  2. this is a poli-sci question since there is no real economic reason. The reason is politicians must pay for votes and they use Government dollars to do it. So they promise to pay for jobs, welfare, subsidies to companies, and other things that help individuals more than the whole society. AND they get votes by keeping taxes low as they can.

  3. They spend like crazy and don't know how to manage it. I'm not really (only) talking about Bush, but all of them are that way. Too much corruption and too much spending!!

  4. Bad money management, paying for wars, paying for too much social benefits, other dumb things.

  5. because we spend so much subsidizing eastern countries

  6. To try please more people and win more votes.

  7. For two reasons:

    .- For cover its expenses.

    .- For let to Federal Reserve to make monetary policy.

    Western governments usually presents fiscal deficit; this is because the taxes are not enough to cover the public expenses; this borrow are acquired by Federal Reserve of financial system; not direct to the public because there is an important impact on interest rates that could be managed by financial authorities.

    Federal Reserves can not emit paper of debt to make manetary policy to control interest rates, but usually it is the owner of paper emited by government; then buy and sell it to ubicate the interest rates on the level desired.

    In all western governments there is some difference in this mechanism but the structure are the same.

  8. because they are full of debts after years and years of stupid managing of economy and after the greedy and stupid managers of the banks have made a big mess and a big theft against the savers

  9. Don't know about all western governments but the U.S. has outsourced so many jobs and has virtually destroyed the manufacturing industry in this country by importing cheap materials, so much so that the tax base has been decimated. We have to borrow money from the countries who we now import goods from, goods that we used to make ourselves. The whole bunch in Congress should have been jailed a long time ago.

  10. The same reason any government has to borrow money:

    Spending more money than you have.

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