Many may think that all countries in the world are indebted to the United States (US). But the US is one of the countries with the highest debt in the world, so who does the US owe?
Everyone knows that the US is the largest economy in the world. But based on statistics, this year, the US national debt has reached about US $ 26 trillion and the highest ever recorded.
Before that, let's find out how a country actually owes money?
We first understand why the country is in debt. The debt of this country is due to the country's expenditure exceeding the income generated by that country.
If that happens, a deficit will occur. The amount of deficit that continues to increase each year is a calculation for a country's debt.
National debt comes from within the country itself for example agencies and companies in the country.
The government of a country will offer debt investment certificates or known as bonds, aimed at raising large funds for any national development program. For example, a bond worth RM10 million with a maturity of 10 years and a return of 10% per annum.
If you have a company and are interested in buying the bond, you will pay RM10 million to the government. Enough for 10 years, you will get back the full payment of RM10 million. Each year, you will get a return of RM1 million for 10 years, so the total return is RM20 million in the same period.
Bonds are a long-term investment with very low risk and can attract many companies to invest.
The same situation occurs if one country owes money to another. If other countries are interested in bond offers from the Malaysian government for example, they will also invest. So, this foreign investment is actually said to be a foreign debt.
In addition, the debt from the country's central bank itself is also deemed to be the debt of a country.
Usually, when a country's economy is in a weak state, the national bank will act to allocate more funds into the economy by purchasing government bonds.
If the economy is weak, it is likely that companies will also be affected and government bond purchases will decrease. This situation will prompt the central bank to increase the purchase of government bonds.
During the Covid-19 pandemic, we can see that almost every central bank in all countries is taking this step to re-stabilize the affected economy.
Just like the US. US debt soared after the tragedy of September 11, 2001. In addition to requiring substantial funds to cover infrastructure damage, the US has also increased spending in their military and defense sectors.
To reduce its debt, a country needs to formulate better strategies, especially to increase the country's income as well as control spending in order to reduce the deficit.
With this pandemic crisis still unresolved, the debt of most countries is increasing and the government is actively channeling financial assistance to revive the economy. Therefore, every country needs to be smart to ensure that the country's debt is at a controlled level.
