Every country is borrowing money....who from???

[FenceFurniture]

When you borrow money, it comes from someone else or a bank or whatever.

At the moment, it seems that every country in the world is borrowing money to deal with the economic catastrophe brought on by the coronavirus.

Where does it come from?

[Lappa]

I read that some countries are simply printing.

[woodPixel]

How come Australia suddenly has billions of dollars to pay for welfare? - Hack - triple j

[DomAU]

When you borrow money, it comes from someone else or a bank or whatever.

At the moment, it seems that every country in the world is borrowing money to deal with the economic catastrophe brought on by the coronavirus.

Where does it come from?

Australia, Japan, the USA and Europe are undertaking quantitative easing which basically means that the Government issues Bonds which are sold on the market and purchased by private investors, banks, hedge funds, super-funds etc and then are purchased from them by the central/reserve banks. The central banks are generally not allowed to buy government bonds directly but can on the secondary market. They are also buying up corporate bonds and i the USA even junk bonds (BBB or lower rated) By buying up the bonds the central banks are effectively lending money (that didn't exist up to that point - the central banks create it) to the Government and corporates and also bid up the price of the bonds which effectively pushes down the yield or interest rate paid - thus 'flattening the yield curve'or reducing interest rates.

The reserve banks build their balance sheet by buying these securities and effectively 'print' that amount of money into the financial system(it's not physically printed just electronic spreadsheet numbers). The idea is that they will later sell these bonds into the market and drain this excess liquidity. But so far it seems the process can never be reversed without crashing the markets so it's effectively just inflating the money supply or monetising the debt.

Cheers, Dom

[PJM16]

It's been like that for a long time. Everybody is in debt, but who are they in debt to? The Labor Party are especially good at getting Australia in to debt.

[AlexS]

The Labor Party are especially good at getting Australia in to debt.

...and getting Australia out of trouble.

[FenceFurniture]

It's been like that for a long time. Everybody is in debt, but who are they in debt to? The Labor Party are especially good at getting Australia in to debt.

PJM, I'm not looking to have this thread politicised. It was a question about economics, not politics.

[Beardy]

How come Australia suddenly has billions of dollars to pay for welfare? - Hack - triple j

I think if you believe this you also believe in the easter bunny. I get what they are saying when interest rates are so low but it is not always like that
If it was that simple any third world country with a printer could print enough wealth to sort their problems

One of the financial gurus said that funding this emergency is easier than the last GFC because interest rates are so low

[Fekit]

Where does it come from?

It comes from the future.

[elanjacobs]

If it was that simple any third world country with a printer could print enough wealth to sort their problems

Zimbabwe went overboard with that idea and their currency became so worthless that they ended up with 1 trillion dollar bank notes before abandoning it entirely

[FenceFurniture]

If it was that simple any third world country with a printer could print enough wealth to sort their problems

Beardy, I think what changes that is this bit:
"A country also takes a debt out against its asset, which is the Australian people and their productive capacity as a nation. But Australia will always be here producing goods and services, unlike a car or a house which can be taken away. As long as we keep producing goods and services and money keeps flowing through the economy, the national debt never has to be repaid."

Not so sure about that very last bit (others in the know can comment on that) but a third world country doesn't have that production power for goods and services, and they also often have enormous inflation which shoots down Modern Monetary Theory.

So the way I understand that, as an analogy, is that a company doesn't have enough money to hire "Superman" who would be able to increase the production of the company significantly. They borrow the money to be able to hire him and purchase the requisite equipment for the production increase, betting against the increased income allowing them to service the debt. As long as the company stays productive, and there is sufficient demand for their produce, all is well.

BUT
isn't that a little bit like a pyramid scheme, or is there a part that I'm missing? Certainly we can always expect that there will be demand for Australia to produce the goods and services, but demand can be quite variable as we are seeing writ large at the moment. Demand for Oil and South Sea Island cruises is non-existent but demand for computer monitors is enormous, and further screwed up by a huge lack of supply because they all come from South Korea and China.

How am I going there?

[FenceFurniture]

Zimbabwe went overboard with that idea and their currency became so worthless that they ended up with 1 trillion dollar bank notes before abandoning it entirely

I think there was also an underlying problem for Zimbabwe: their ultra corrupt dictator president just would NOT die!

[Mobyturns]

I think the most appropriate answer is "we are borrowing from the future" our children and grand children will be saddled with the burden of this corona virus stimulus / recovery debt. As Dom states its a balancing act, how far is to far?

[FenceFurniture]

I think the most appropriate answer is "we are borrowing from the future" our children and grand children will be saddled with the burden of this corona virus stimulus / recovery debt. As Dom states its a balancing act, how far is to far?

Yes but any borrowing by any person or entity is from/against the future. It's the very definition of borrowing. The opposite is to pay for stuff out of existing money, that is, spending the past.

Around 6-12 months ago I read that Norway is now so rich from oil revenue that it is becoming a problem. They have nowhere to put the money (or something like that). I don't understand how that creates a problem though. Maybe they need to urinate it up the wall on Rollers, Miebachs and private jets like the Middle East did.

[FenceFurniture]

Around 6-12 months ago I read that Norway is now so rich from oil revenue that it is becoming a problem. They have nowhere to put the money (or something like that). I don't understand how that creates a problem though.

Further to that, I don't understand why they can't use this excess money build stuff for the future that will help them create revenue then, or create stuff that will reduce future expenditure. I dunno, something along the lines of a stockpile of super-efficient wall building materials for future constructions that will reduce their heating bills to negligible. There must be SOMETHING they can do with the money.

As we have discussed in another thread, there is only about 50 years worth of oil left in the world (not sure where Norway's reserves lie in that figure), so just like the Middle East, Norway will run out of this revenue. It may be sooner than 50 years too - that's the supply forecast at current demand, but when electric vehicles get going bigly () the demand will drop away at a pretty steady clip. Not completely, but enough to cause revenue pain.