Question

1. What is the difference between debt held by the public and intra-governmental debt? Is the distinction meaningful? Explain.
2. Explain the argument that debt doesn’t matter because we owe it to ourselves. What are the problems, if any, with this argumen

Answer 1

Public & Intra-government Debt
Public debt refers to the total borrowing of the government both internally and externally to meet the expected deficit in its spending. It can also be defined as the difference between the government receipts and the spending with a deficit budget. Since the expenditure from the debt is made for the entire public or the nation, it is known as public or national debt. Government may take borrowing from the nation itself or from other nation or institutes.
Intra-government debt refers to the type of debt that a part or agency of a government lending or borrowing from other part or agency of the same government. The debt is within government agencies for their functioning as if they face deficit in their financing. Social security trust funds are example for intra-government debt.
The argument that the debt doesn’t matter since we owe it ourselves cannot be justified since an ineffective transaction which is not made back can imbalance the functioning of different government agencies. Intra-government debts will flow from one part of the government to the other. If the borrowed part or agency does not perform well to pay back the amount, the lending part of the government or the agency face a deficit in its assets. That can negatively affect the lending agency in its amount of assets leading instability. The argument suggests about the ownership of the funds but not about the effects they have in various part of government. Even if the funds are transferred within the government itself, it is between different agencies functioning with different motives. So debt, even within the parts of government itself, an inefficient allocation of debt can affect the ability of each agency to perform well and reducing the ability of the government as a whole to fund further.