Government Debts:
Development engages happiness which in turn includes fulfillment of needs of an individual. The sole body responsible for uplifting economic background of people of a country is its' government. Bringing up new plans and schemes for boosting the economy has been a widely accepted pattern among the people involved in running a government. On the verse of same, there are many times when government lacks funds for initiating a plan and a situation of budget deficit occurs. The most reliable way a government tackles the situation is by issuing treasury bills or bonds.
Government Bonds:
Bonds are issued by government when budget deficit occurs, compelling the government to seek for a debt from either people inside a country or foreign source to achieve its' target of development for a particular year. There are different types of bond issued by government based on interest payment, some of which includes:
a) Fixed Rate Bonds: Interest remains fixed throughout the tenure
b) Floating Rate Bonds: Interest fluctuates as per market scenario.
c) Zero Interest Rate Bonds: No interest paid for the investment. However, the bonds are issued at a discounted rate.
Are Debts taken by government worthy?
Government debts can be considered as a loan taken by a business enterprise to run its business and generate economic activities to help run the economy of a country in an increasing pattern. Considering the same case, the activity of acquiring the loan, can be considered better if the enterprise can pay the debts within time and still run in an efficient manner. If it fails in anyway, the debt is considered bad and leads to bankruptcy of enterprise and leads to weakening of economic position of the lender.
The same scenario fits good for government debts. Pay it well in advance, your economy boosts and vice versa. To understand the situation better, diving into an example is a must. The rising debt of America has been a matter of talk among every individual concerned with economics. In recent times, America is adding up debt over its arm to remain the leader of world power and boost its economy. The much of the debt taken by America has been spent for:
a) Military Activities
b) Financing Government Schemes
c) Tax Cuts
At present US owes around $21 trillion in debts against both internal and external lenders. To keep track of development, the government has been issuing bonds and not printing new currency as this will lead to dilution of country's economy and reduces the purchasing power of dollar. The act could be welcomed if government has plans to actually work on spending the debts over income generating activities rather than spending them over something which can hardly bring any ROI. A short vision depicts, the profit for common people as they are enjoying riches without hard work and are supported by government at every stage they get into trouble. This act actually corrupts the way people used to perceive difficult situations and will start developing affinity towards seeking help for every small problems they encounter.
Not only the economic requirements,but also situations of trade war has flourished the act of issuing treasury bills. Countries like China and Japan buy treasuries of US government to create an artificial demand of USD over their own currency which will help them keep their currency lower relative to dollar. This also has an added advantage for third world countries as the US government becomes liable to purchase the goods produced by them and thus helps boosting the economy of their countries. This has led to Trade Deficit of USA with many countries often talked about the president of America.
As, the debt taken by America seems to be invested in non-productive sectors, it is observable that their economy is going to be in a big trouble if stern actions against the trend of issuing bills and unwanted benefits for its citizen in name of different care undertaken by previous governments is not controlled.
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