Government debt  

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Train wreck at Montparnasse (October 22, 1895) by Studio Lévy and Sons.
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Train wreck at Montparnasse (October 22, 1895) by Studio Lévy and Sons.

Government debt (also known as public debt or national debt) is money (or credit) owed by any level of government; either central government, federal government, municipal government or local government. The annual government deficit, however, refers to the difference between government receipts and spending.

As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from supranational institutions. Some consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid, as government debt.

Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be one year or less, long term is more than ten years. Medium term debt falls between these two boundaries.

History

During the Early Modern era, European monarchs would often default on their loans or arbitrarily refuse to pay them back. This generally made financiers wary of lending to the king and the finances of countries that were often at war remained extremely volatile.

The creation of the first central bank in England—an institution designed to lend to the government—was initially an expedient by William III of England for the financing of his war against France (Anglo-French War). He engaged a syndicate of city traders and merchants to offer for sale an issue of government debt. This syndicate soon evolved into the Bank of England, eventually financing the wars of the Duke of Marlborough and later Imperial conquests.

The establishment of the bank was devised by Charles Montagu, 1st Earl of Halifax, in 1694, to the plan which had been proposed by William Paterson three years before, but had not been acted upon. He proposed a loan of £1.2m to the government; in return the subscribers would be incorporated as The Governor and Company of the Bank of England with long-term banking privileges including the issue of notes. The Royal Charter was granted on 27 July through the passage of the Tonnage Act 1694.

The founding of the Bank of England revolutionised public finance and put an end to defaults such as the Great Stop of the Exchequer of 1672, when Charles II had suspended payments on his bills. From then on, the British Government would never fail to repay its creditors. In the following centuries, other countries in Europe and later around the world adopted similar financial institutions to manage their government debt.

1815, at the end of the Napoleonic Wars, British government debt reached a peak of more than 200% of GDP.

See also

Government finance:

Specific:

General:




Unless indicated otherwise, the text in this article is either based on Wikipedia article "Government debt" or another language Wikipedia page thereof used under the terms of the GNU Free Documentation License; or on original research by Jahsonic and friends. See Art and Popular Culture's copyright notice.

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