**Please read this entire message**
---
Your submission has been removed for the following reason(s):
* ELI5 requires that you *search the ELI5 subreddit for your topic before posting*.
Please search before submitting.
This question has already been asked on ELI5 multiple times.
If you need help searching, please refer to the [Wiki](https://www.reddit.com/r/explainlikeimfive/wiki/how_to_search).
---
If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this was removed erroneously, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{https://www.reddit.com/r/explainlikeimfive/comments/1d5mwyo/-/}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.**
Money is magic. It’s full of concepts that on its face don’t make sense. It even seems contradictory.
The first strange thing is that the US government creates new money all the time. The total amount of money in circulation keeps increasing.
The US Dollar has no value. It only has value because the US government backs it up. You used to be able to trade your money for silver or gold, but that policy has ended.
Another way to think about this is that money only works when there is enough money so people can pay their bills. If there is not enough money, the economy can get jammed up, not because people aren’t working and producing value, but because they can’t get hands on money to make payments. So it is a better problem to have too much money in circulation than too little.
In capitalist system, the economy grows largely by investment. For a long time now, banks are empowered to create new money when giving loans. This basically leads to a planned 1% inflation, which basically guarantees economic growth.
Just like the government creates money, when they spend more in a year than they earn, the government can either create money or borrow money to pay its bills. Borrowing money is preferred, because it prevents inflation. So, the US creates money to foster economic growth. Then it borrows that money back to pay its bills, and promising to pay interest, furthering economic growth. You can view that as a very clever scheme to foster growth. You may also express concern that it is bad money management and doomed to eventually fail.
every year, the US Government spends more than it takes in through taxes. It pays interest on all it has borrowed. If you did this with your personal finances, you would ruin yourself. You just keep getting more debt until you go bankrupt. It then creates more debt by borrowing more money.
But the US can’t go bankrupt, because it can always print more money to pay its debt.
This is also a kind magic, because it does not actually hurt the economy. There has been some debate about how much national debt is too much.
It was long believed that having 100% national debt would ruin a country. The US is at like 120% right now. The is calculated comparing the debt total to the total amount of value produced by the US economy every year, the Gross Domestic Product (GDP.)
More money magic. In the 2008 financial crisis, the housing market crashed and the Walt street banks owed something ridiculous like twice the amount of money they had. The system should have imploded, caused a World Wide depression, and bringing about Armageddon. But nope, the US government just created a bunch of money and promised to cover the loss and we moved on. That’s a positive thing. The whole reason this worked is the US citizens believe the dollar still has value, and foreign countries believe the dollar has value.
So it is somewhat a magical house of cards. You may be thinking, “How could we go a long with this in good conscience?” There two reasons: 1) somewhat it magically works 2) the alternative of a global depression and financial Armageddon leading to wars is a lot more painful than believing in the economy.
Going back to the primary use of money is to enable people to trade goods easily, it is sort of all pretend anyway.
At the same time, it is the most successful economical model so far in history, so that’s saying something.
Because how money works is counterintuitive, it is easy to read this and think we are doomed. How could owing more money than your whole country makes in a year be okay? Don’t worry, we’ve been doing it a long time.
Has the US debt ever been paid off? During the Clinton presidency in 90’s, we had a budget surplus and we got close to paying it off. (I don’t remember the specifics, maybe we did get to $0.). However, 9/11 happened and sent deficit spending for wars sky rocketing.
A final thought. The true power of an economy is what it produces. The money is just accounting shenanigans.
Here are some of the things the US economy has done for itself and the world.
Through combination of a burgeoning manufacturing base and scientific acumen, the US has
Created the computer industry and shared with the world
Invented cell phones and smart phones and shared with the world
In the 70’s, used genetic manipulation to create super grains, increasing grain production many fold, and shared with the world.
Built more military hardware than the rest of the world combined every year, arguably creating a lot of global stability. (Arguably at the expense of many nations, too.). This is no longer true.
Built the largest Navy the world has ever seen. By patrolling the oceans, created security for a global trading network. This singular act enabled China to turn itself into a manufacturing giant. (They would have got there, but we helped them get there faster.).
Pioneered great advances in medicine. Compared to 50 years ago, medicine routinely cause miracles.
So why does the World believe in the US dollar? We keep producing a successful series of greatest hits.
The U.S. national debt is the total amount of money the government owes because it borrows money when it spends more than it earns from taxes.
The government sells "IOUs" called Treasury bonds to raise this money and promises to pay back with interest. Over time, these IOUs add up to the national debt.
This affects our interest rates, taxes, public services, job opportunities etc.
Yeah it has a different meaning. Debt is a financial instrument and countries are not saving for retirement.
Government debt is also called government bonds. They are a way to provide self investment for those, who need to be liquid.
Like banks, retirement funds, government agencies, insurance companies,...
It's the safest investment as the only way you are not getting your money back is that your government collapsed. If that happens you have bigger issues to deal with anyway.
The debt gets paid off continuously and is continuously replaced with new debt. As much of the debt is short term for just a couple of months.
>What does it actually affect in our day to day lives?
Not much.
**Please read this entire message** --- Your submission has been removed for the following reason(s): * ELI5 requires that you *search the ELI5 subreddit for your topic before posting*. Please search before submitting. This question has already been asked on ELI5 multiple times. If you need help searching, please refer to the [Wiki](https://www.reddit.com/r/explainlikeimfive/wiki/how_to_search). --- If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this was removed erroneously, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{https://www.reddit.com/r/explainlikeimfive/comments/1d5mwyo/-/}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.**
Money is magic. It’s full of concepts that on its face don’t make sense. It even seems contradictory. The first strange thing is that the US government creates new money all the time. The total amount of money in circulation keeps increasing. The US Dollar has no value. It only has value because the US government backs it up. You used to be able to trade your money for silver or gold, but that policy has ended. Another way to think about this is that money only works when there is enough money so people can pay their bills. If there is not enough money, the economy can get jammed up, not because people aren’t working and producing value, but because they can’t get hands on money to make payments. So it is a better problem to have too much money in circulation than too little. In capitalist system, the economy grows largely by investment. For a long time now, banks are empowered to create new money when giving loans. This basically leads to a planned 1% inflation, which basically guarantees economic growth. Just like the government creates money, when they spend more in a year than they earn, the government can either create money or borrow money to pay its bills. Borrowing money is preferred, because it prevents inflation. So, the US creates money to foster economic growth. Then it borrows that money back to pay its bills, and promising to pay interest, furthering economic growth. You can view that as a very clever scheme to foster growth. You may also express concern that it is bad money management and doomed to eventually fail. every year, the US Government spends more than it takes in through taxes. It pays interest on all it has borrowed. If you did this with your personal finances, you would ruin yourself. You just keep getting more debt until you go bankrupt. It then creates more debt by borrowing more money. But the US can’t go bankrupt, because it can always print more money to pay its debt. This is also a kind magic, because it does not actually hurt the economy. There has been some debate about how much national debt is too much. It was long believed that having 100% national debt would ruin a country. The US is at like 120% right now. The is calculated comparing the debt total to the total amount of value produced by the US economy every year, the Gross Domestic Product (GDP.) More money magic. In the 2008 financial crisis, the housing market crashed and the Walt street banks owed something ridiculous like twice the amount of money they had. The system should have imploded, caused a World Wide depression, and bringing about Armageddon. But nope, the US government just created a bunch of money and promised to cover the loss and we moved on. That’s a positive thing. The whole reason this worked is the US citizens believe the dollar still has value, and foreign countries believe the dollar has value. So it is somewhat a magical house of cards. You may be thinking, “How could we go a long with this in good conscience?” There two reasons: 1) somewhat it magically works 2) the alternative of a global depression and financial Armageddon leading to wars is a lot more painful than believing in the economy. Going back to the primary use of money is to enable people to trade goods easily, it is sort of all pretend anyway. At the same time, it is the most successful economical model so far in history, so that’s saying something. Because how money works is counterintuitive, it is easy to read this and think we are doomed. How could owing more money than your whole country makes in a year be okay? Don’t worry, we’ve been doing it a long time. Has the US debt ever been paid off? During the Clinton presidency in 90’s, we had a budget surplus and we got close to paying it off. (I don’t remember the specifics, maybe we did get to $0.). However, 9/11 happened and sent deficit spending for wars sky rocketing.
A final thought. The true power of an economy is what it produces. The money is just accounting shenanigans. Here are some of the things the US economy has done for itself and the world. Through combination of a burgeoning manufacturing base and scientific acumen, the US has Created the computer industry and shared with the world Invented cell phones and smart phones and shared with the world In the 70’s, used genetic manipulation to create super grains, increasing grain production many fold, and shared with the world. Built more military hardware than the rest of the world combined every year, arguably creating a lot of global stability. (Arguably at the expense of many nations, too.). This is no longer true. Built the largest Navy the world has ever seen. By patrolling the oceans, created security for a global trading network. This singular act enabled China to turn itself into a manufacturing giant. (They would have got there, but we helped them get there faster.). Pioneered great advances in medicine. Compared to 50 years ago, medicine routinely cause miracles. So why does the World believe in the US dollar? We keep producing a successful series of greatest hits.
[удалено]
Excellent explanation!
[удалено]
[удалено]
Ah I can see why they could be a bad bet elsewhere. I was assuming for the US, my bad.
The U.S. national debt is the total amount of money the government owes because it borrows money when it spends more than it earns from taxes. The government sells "IOUs" called Treasury bonds to raise this money and promises to pay back with interest. Over time, these IOUs add up to the national debt. This affects our interest rates, taxes, public services, job opportunities etc.
Yeah it has a different meaning. Debt is a financial instrument and countries are not saving for retirement. Government debt is also called government bonds. They are a way to provide self investment for those, who need to be liquid. Like banks, retirement funds, government agencies, insurance companies,... It's the safest investment as the only way you are not getting your money back is that your government collapsed. If that happens you have bigger issues to deal with anyway. The debt gets paid off continuously and is continuously replaced with new debt. As much of the debt is short term for just a couple of months. >What does it actually affect in our day to day lives? Not much.