I was surpriced when I saw the debt of USA has raised to more than 100% of its GDP. But I saw other countries like Japan having over 250% of its GDP. And a lot of countries have debt near 100% of GDP.

Why are these countries called developed nations when they accumulate debts over their productions? Is debt really not that bad for national economy?

closed as off-topic by Chris W. Rea, Victor, Dheer, JoeTaxpayer Mar 16 '16 at 13:00

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  • 2
    This will probably get shot down, because it's a macroeconomic question and not a personal finance question. But whatever. – Jay Mar 16 '16 at 4:13
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    more apt on economics.stackexchange.com – Dheer Mar 16 '16 at 5:15

Is it not that bad? Depends how bad is bad.

The problems causes by a government having large debt are similar to those caused by an individual having large debt. The big issue is: More and more of your income goes to paying interest on the debt, and is thus not available for spending on goods and services. If it gets bad enough, you find you cannot make payments, you start defaulting on loans, and then you have to make serious sacrifices, like selling your property to pay the debt.

Nations have an advantage over individuals in that they can sometimes repudiate debt, i.e. simply declare that they are not going to pay. Lenders can then refuse to give them more money, but that doesn't get their original loans paid back. In theory other nations could send in troops to seize property to pay the loan, but this is a very extreme solution. Totally aside from any moral considerations, modern warfare is very expensive, it's likely the war would cost you more than you'd recover on the debt.

How much debt is too much? It's hard to give a number, any more than one could give a "maximum acceptable debt" for an individual. American banks have a rule of thumb that they won't normally loan you money if your total debt payments would be more than 1/3 of your income. I've never come close to that, that seems awfully high to me. But, say, a young person just starting out so he's not making a lot of money, and he lives someplace with high housing prices, might find this painful but acceptable. Etc.

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