Or public debt, the sum total of a government's pecuniary obligations. The national debt is the result of a state's borrowing from its population, from foreign governments, or from international institutions such as the International Bank for Reconstruction and Development. Public debts tend to be large-scale credit operations and are contracted on a national scale by central governments and on a lesser scale by provincial, regional, district, and municipal administrative bodies. In the U.S., public debts are also contracted by the states and by local governments, primarily for public works.
Kinds of Debt
National public debts are contracted chiefly through the flotation of interest-paying loans, in the form of bonds, bills, or notes. Historically, these loans have been undertaken to raise money for wars and national defense and to finance public works. More recently, governments have taken loans to meet national budgets or expenditures that are not covered by revenue, or to seek to improve economic conditions by counteracting unemployment or depressions, or both, with deficit budgets. Not all financial authorities agree that nations should carry a high level of public debt, as it can be inflationary. Rather than the level of debt, however, the most important consideration is the capacity of a nation to service its debt.
Some long-term maturing debt is repaid by short-term borrowing that does not add materially to the total indebtedness. The redeeming of public debts includes the repayment of principal on maturity; amortization through periodic payment of part of the principal; and the buying up of government securities on the open market. Many governments have established sinking funds for the purpose of redeeming public debts; debts redeemed in t ...