How Does the Government Borrow Money?

How Governments Obtain Debt

Governments get most of their money by taxing those who live within their jurisdiction. However, many times the amount of money spent by the government is greater than the amount of money available. This is when governments begin to accrue debt. These debts can come from wars, nation improvements, health care, and any other government provided services and activities.

Internal Debts

There are two separate kinds of government debt, internal and external. Internal debts is money borrowed from citizens within the government's country. These debts come from treasury bonds and bills borrowed from the central bank. Treasury notes and bonds are sold to citizens at maturities of 2 to 10 years. Interest is usually paid out every 6 months to the bond holder.

External Debts

External debts are money borrowed from foreign leaders and governments. External debt can also be borrowed from other foreign sources, whether they be corporate or private. The United States currently ranks number one in external debt with over $13,773,135, followed by the United Kingdom and Germany (see Resources below).

Implicit Debt

Implicit debts are debts in the form of promises. This is the exchange of funds in return for promised of social payments on health, education, security, and pensions. These are the most difficult to keep track of as there are no debt papers or bonds to track.

Resources

• The United States and External Debt