Economics Debt Essay Example | Topics and Well Written Essays - 1000 words

Economics Debt - Essay Example Historically, one of the main challenges to government leaders is the generation, and the application of a country’s wealth and resources towards â€Å"three main duties of great importance. These are as follows: protecting the country from violence and invasion; protecting, as far as possible, every member of the society from oppression and injustice, and thirdly, erecting and maintaining public works, public institutions, which can never be for the interest of any individual or group of individuals. Financing the state was basically through revenue raised through â€Å"taxes of one kind or another (Smith 476).1 Public debt was not unheard of, but was held suspect. In the last two decades, most countries have been experiencing periods where their outlays exceed their revenues, with no balanced budget in sight. Governments faced the formidable task of managing runaway budget deficits and growing public debts, both internal (owed to nationals), and external (owed to foreigners). To cover the shortfall or deficit, governments sell public assets, levy taxes, print and/or borrow money. Government borrowings to finance deficits create â€Å"public† debts, which need to be serviced through interest payments or through refinancing. Obligations of government resulting from issuing guarantees for a public sector enterprise added to the public debt become what are known as the â€Å"federal debt (Iqbal 2)2.† Available data showed that by 2007, 124 countries had been running on borrowings and that many of these countries had breached the acceptable level of public debt -to -GDP ratio. The US debt-to-GDP ratio had risen to 60.8 % in 2007. Other countries exhibited higher debt-to- GDP ratio; Japan’s debt-to-GDP ratio reached 170%, Germany, 64.9%, and Canada, 64.2 %( Nationmaster1)3. Public debt and budget deficits had become a global phenomenon and the principles of balanced budget and surplus became part of a