national debt

Debt incurred by the central government of a country to its own people and institutions and also to overseas creditors. A government can borrow from the public by means of selling interest-bearing bonds, for example, or from abroad. Traditionally, a major cause of national debt was the cost of war but in recent decades governments have borrowed heavily in order to finance development or nationalization, to support an ailing currency, or to avoid raising taxes.

Government budgets are often planned with a deficit (shortfall) that is funded by overseas borrowing. In the 1980s most governments adopted monetary policies designed to limit their borrowing requirements, both to reduce the cost of servicing the debt (paying off the interest), and because borrowing money tends to cause inflation.

In the USA the net government debt as a proportion of gross national product rose steadily in the 1980s from only 19% in 1981 to 31% in 1988, as its borrowing increased to finance a huge influx of imported goods and to support increased defence spending. By 1999 the US national debt had reached $3.6 trillion.