Does National Debt affect one's finances?

The debt of a country, if it does not default on it or try to print it away, must be borne by the population, most likely for generations to come. So, if we divide the debt of a country by the population, we get a quick measure of how much debt each person must bear due to the country’s fiscal policies over the years.

For example, looking at the list of countries by external debt:

We see that each immigrant to the US, or child born there, inherits $60,526 of debt. Some other top debtors are: the UK: $127,000/person, France: $87,200 and Germany: $69,000

Likewise, a citizen that renounces their citizenship for the US (due to taxation on worldwide income) or stops becoming a tax resident of their county by leaving, receives a net gain.

An alternative metric is the Net International Investment Position:

In which case, immigrants to the following countries inherit the following debt per capita:
US: $43,460
UK: $11,934

Singapore: +$182,040 (you make this amount by becoming a PR or citizen in Singapore)
Taiwan: +$58,184 (likewise for Taiwan)

All figures in US$

What do you all think? How does living in a country which is a net debtor, or creditor play out, on a day to day basis?

For example, if one lived in a country which was a net debtor, would you generally be looking at a higher poverty rate, less disposable income, lower savings, higher taxes, lower financial freedoms, etc.? In the worst case, a prospect of hyperinflation and collapse of living standards.

Incidentally, how did the US swing so dramatically from being a large creditor, to a large debtor?

Can you find any common denominator among the countries which are net creditors, and those which are net debtors (from the Net International Investment Position metric)? It seems net creditors generally have educated populations, low corruption and/or oil. The net debtors seem to be corrupt countries.

I fail to see your point. Moving to Taiwan doesn’t mean those US$ 60k magically appear in my bank account. Neither would moving to the US drain it.

And speaking about the US: They can only go into that much debt because everyone has so much trust in them that they basically cannot become bankrupt (well, maybe a oversimplified…). So a high amount of per capita debt through government debt can actually be seen as a sign of living in very developed country that is politically stable overall.

Indeed entering an indebted country does not make the money leave our account, or if you enter a net creditor country, the money does not appear in our account either.

But the national debt is there, and it is real. The national debt divided by the population is literally, the debt burden on present day society or its offspring. Plus minus a few billion $ in accounting errors or latency.

The question is how the national debt will play out for our, and the latter generations’ quality of life.

I guess it is a bit like coming to work for a large company that is actually insolvent. It is also a bit simplified because the company’s debts are limited and do not become the employees’ debts. But an employee can work for years in the company, get paid their salary as usual, and be none the wiser the company is about to collapse. They may even leave the company beforehand, in which case they aren’t affected by the company’s insolvency.

The too large/too trusted to fail argument makes me a tad nervous because no fiat currency has ever withstood the test of time, and all governments and indeed empires have eventually splintered/collapsed or disappeared.

“ Only when the tide goes out do you discover who’s been swimming naked .” - Warren Buffett

On the other side, there is also infrastructure and other advantages which might directly or indirectly be related to the debt. So just looking at the debt feels a bit one-sided to me.

And no one says this debt actually needs to be paid back in a lifetime. If you move to the US and „inherit“ around US$ 60k but at the time of your death the US has US$100k government debt per capita, wouldn’t you consider that to be a „good deal“ too?

Yeah that is true, the debt might have been used to fuel infrastructure building for future generations. Or it may have been used for wars. Let us hope our leaders are wise and spend the public’s money prudently :thinking:

On an individual basis you may be right, but which parent wants to pass on debt to their children?

Surely it is better to be in a country with a net credit per capita of $60k and then becoming $100k at the time of your death.

This is wrong, national debt is a good thing. Often this brings about increased economic output which increases living standards and enables the population to increase productivity and contribute more.

This is wrong. National debt is not ‘held by the citizens’ as you’re implying. The number does not tell the full story, in fact quite a lot of that debt is held by citizens.

It doesn’t work that way. No country pays dividends or otherwise requests taxpayers to pay the national debts. In fact, not only do you not ever see this money, paying off the debts might actually cause problems because of the fact that other sectors of the economy perform well or even better than the interest that the national debt. It’s about keeping the money circulating. Debt creates new money as well without using the printing press. Renouncing your citizenship is not going to change your day to day finances and in many cases makes our life objectively worse as you lose the opportunities in that country. That ‘debt’ or ‘surplus’ does not belong to you and is not worth your time to think about in your day to day planning.

Again, this doesn’t tell the whole story. You don’t make this amount by becoming a PR or citizen of Singapore. This is one aspect of managing an economy.

For normal people? It doesn’t. In fact, quite a few normal people MAKE money from being a debtor because the debts as mentioned above are held by individuals in the form of bonds.

No. Economic mismanagement hurts people, not whether or not the country has a surplus. Countries are not companies. Countries are not supposed to profit.

You’re going to find examples in both camps because national debt and surpluses are not indicative of standard of living.

it’s not necessarily a burden if sustainable management of an economy means that payments are made on time and investments generate increased production. Debt is like a capacitor, it can smooth the spikes in power and demand.

Not likely to hurt as mentioned above.

Countries are not companies. Employees can be fired and companies act in their self interest.

Countries act in the interests of their people. Defaults do not make a country disappear. You cannot fire citizens. Countries are not profit-seeking enterprises. Companies may increase their profits without caring for their workers because the workers are not owners. Countries cannot.

This really is not relevant to the conversation.

Yes exactly and the caveat is also exactly here. Debt is good if you use it properly to improve the country’s economic fundamentals but more often than not it just becomes a way for the country to maintain its way of life when the economy is tanking, sometimes the economy doesn’t go back up fast enough and everyone is then fucked. Case in point Greece, Spain and Italy. Some other such as France and UK are playing with fire. They either turn their economy around this decade or they will be the next Italy.

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Debt may be a good thing under specific circumstances. For example as you point out, if the gains you can make from the debt outstrip interest payments on it.

Can you please explain? The statements seem contradictory.

Renouncing one’s citizenship was specifically for the US example. The US taxes worldwide income, most other countries do not. It is anecdote but I know two US-origin expat families who decided to renounce their citizenship because it made financial sense.

Of course you don’t, I was exercising a literary license. Effectively what I was saying was that it is preferable not to live in a highly indebted country.

This may certainly be the case within a lifetime, or a few generations. But debt-driven devaluation of currencies has a statistical probability of 100% on sufficiently long timescales (see article linked below).

OK it was a bad example.

It is, because the devaluation of a fiat currency is debt driven.

Yes, but these gains may not always be direct. They may include intangible things like productivity. A businessman may look at unprofitable transit lines and consider them undesirable.

An economist may look further to see if such lines are improving macroeconomic performance. They may not provide liquid gains. Economics is about studying people and their decisions. Economics has nothing to do with money.

Citizens, both domestic and foreign can be debtors to the state. They can lend money to the state and that counts as national debt. But citizens are not personally responsible for the debts of the state. It’s not their debt.

English is hard.

That’s their personal decision though. It is personal to their situation. It doesn’t matter if it’s the US or not. They were not asked to repay their portion of the loan when renouncing and they didn’t inherit their portion of the surplus Taiwan has. Renouncing did not change their financial situation in this regard.

Given enough time, everything will statistically be destroyed, dead or unrecognisable.

But it’s not, decisions to live somewhere are highly personal and a country’s debt almost never factors into that kind of decision. There are tonnes of actual factors that actually are relevant to people’s lives. National debt wouldn’t even be in the top 50 decision factors when settling somewhere for 99% of people. If you’re worried about a country’s risk of default, that is a different thing and can limit access to debt for growth. Their credit risk rating is what is important and an indicator of whether or not they are able to pay it back.

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