Debts and Deficits
Why is almost every nation on earth in debt? It might be surprising or even shocking to some people to learn that government treasury departments don't actually have any money. To get some they have to create government bonds which are then bought by banks and financial institutions who essentially create the money to buy them. This means that the government doesn't actually create the money supply as most people would assume. Instead they borrow the money into existence and pass on the debt to the public to be paid with buy their taxes. In reality the taxes pay for little more than the interest payments and governments would appear to have no real chance of ever paying back the money that they owe. It would probably be a very bad idea to pay back these debts anyway as once the debt is repaid the money would disappear from circulation. This would lead to a very real lack of currency in the system and certainly not enough to go round for everybody.
At this point you might well be shaking your head in disbelief and be wondering why governments don't just create money themselves debt free? Well, that is a very good question!
A country's deficit is sometimes confused with it's debt but there are some important differences between these two terms. The deficit is the amount of money a government must borrow each year in order to pay it's bills. This figure is added to the debt which is the total amount of money a government owes. For any government to start paying off it's debt it must stop borrowing and produce a surplus rather than a deficit.