EconomicsNotes

  National debt refers to all the debt owed by government bodies of any sort within a country. It is owed to the holders of Treasury bonds. These bonds are issued with a return which represents the rate of interest on the bond, and if they are in demand, the interest rate falls; if they are not wanted, because of inflation, a threat of non-payment or from exogenous forces, an existing high level of debt, or a distrust of the government which issues them, the interest rate can be expected to rise. Most government bonds in developed countries have been a safe investment for financial institutions in the twenty-first century. For some economists, this means that high levels of borrowing by governments could divert funds that could otherwise have gone to investment or lending in the private sector, raising costs and interest for business and placing pressure on productivity. This process was called ‘crowding out’ in the past, though the term has fallen away a little. Borrowing is n...

  Ultra-low interest policies have been a feature of global monetary management since 2008 in most countries (and were tried in Japan before that.) They exist in the context of the near-collapse of the global economy and of national and international banking, credit, and derivative markets in 2008, though they also reflect a perceived lack of inflation risk. The idea behind ultra-low interest rates, or negative real or nominal rates, was, firstly, to prevent a credit crunch. Credit crunches happen when banks have lent out a great deal of money and cannot fund a large volume of withdrawals. This causes banks to reduce refinancing and new lending, which puts individuals and businesses in a position where they cannot stay in the market and pay their bills and debts, thus creating a spiral of economic decline. In addition, banks might in such circumstances start asking for their loans and credit payments back early, worsening things still further. Many modern banks also are princip...