Can a country exist without running a deficit?

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RMCF

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Looking at all the figures bandied about recently, and seeing how in debt major nations such as the US, UK etc are, I was wondering if its possible for a country to run itself on what it brings in in tax i.e. never borrow?

I know individuals who are in no debt. If they cannot afford something, they don't have it. If they want it, they save for it.

Could a country realistically never borrow and be self sustaining?
 
Ity's very difficult in a democracy because

Voters vote for politicians who promise them goodies
Once in power, the only way to pay for the goodies is to borrow money as invariably they have promised more than the country can afford
So they government of the day borrows as much as it can - unfortunately eventually, the lenders call a stop to it by refusing to lend so country has to go on a diet until it is possible to borrow again.

It is a bit unusual for whole swathes of countries to get away with borrowing for years, but that's what happened over last 10-15 years
 
Nazi Germany claimed autarky but then they just robbed what they wanted from their neighbours and even the huge conglomerates, many of which are still in business, had a plentiful of slave labour.
 
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jpd is absolutely right. The only reason countries accumulate debt is because politicians promise way more then they can afford and with their short term sights on the next election they go and borrow money.
The US was extremely successful in the 19th century with minuscule amounts of debt. Those debts that were taken on were mainly from its own people and mainly used to fund wars.
Countries would be un much better shape if they were constitutionally forced to balance the budget, and politicians were forbidden to borrow even one cent from anyone.

WindUp said:
Germany seem to manage it --not sure if this list is govt debt or national debt!

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_current_account_balance
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That list is not debt it is the current account balance. The German state is very heavily indebted and is running deficits.
 
RMCF this often occured to me too. Without checking figures i suspect that in the forties and fifties in Ireland there was little government borrowing but on the other there was no progress.
 
This is something that occured to me too. Are there any countries with no debt?
 
Can't imagine there is any country without debt in some form.

Sometimes it simply makes sense to borrow for certain things like capital spending. There are companies that generate huge cash flow and profits but still have debt on their balance sheet even if technically they don't need to borrow e.g. Google. Countries are no different. The problem is running huge current deficits to pay for the day to day running of a country. This is unsustainable.
 
Shawady said:
This is something that occured to me too. Are there any countries with no debt?
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Japan is a net lender to the rest of the world, afaik. The government has huge debt alright, but it is mainly owed to Japanese institutions.
 
WindUp said:
Germany seem to manage it --not sure if this list is govt debt or national debt!

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_current_account_balance
Click to expand...

Don't believe Germany has no debt.

Surely any countries which has to go to the financial markets and try to sell bonds is in debt? No?

And Germany had a bond auction partially fail only a couple of weeks ago.

From what I gather, all countries seem to be in debt. Or are China not in debt, as they seem to be lending money to the rest of the world?

And if every country is in debt, who do they owe it to?
 
China has debt despite them denying most of it. Indeed many analysts suspect that chinas debt to gdp ratio is well over 100% There are plenty of countries who run current account surpluses including Ireland (it's why we will get out of this mess quicker than some other countries). Debt in itself is not a bad thing. It's the amount of debt that countries have run up that is the problem.
 
Running a balanced budget wouldn't work. As Sunny says countries need to borrow and not all borrowing is bad, in fact it can be wealth-generating. The problem isn't borrowing per se, it's imprudent borrowing. As a rule of thumb,borrowing to fund day to day spending is bad.

But we also have a ideological, social and economic problem: we are addicted to growth, and economic growth has become the objective and measure of well-being. The inherent premise is that the more wealth the better the country, the happier the people. This is patently false, or at least substantially false. As the philosopher Khalil Gibran (The Prophet) says "Beware of comfort that enters your house as a guest and becomes the master."
 
I was a big fan of the idea of paying down debt during the boom years, but I guess this never happened. Apart from the economic issues, there is also the risk issue. Currencies are vulnerable to speculators where countries need to borrow. If countries don't need to borrow, they don't need to worry about speculators - so there is much lower risk.
 
Two points;
The proportion of a countries debt that's Internal and external matters. When we pay back German bond holders money leaves the country, when we pay back our banks (yes, they used to buy government bonds) then the money re-enters the economy.

We did pay back much of our debt during the bubble years but spending was/is so out of control that our debt exploded when the bubble burst.
 
When discussing deficits and debt, you have to distinguish between:

(1) fiscal deficits (Govt)

and (2) external deficits (the whole nation), also known as the Balance of Payment current account deficit

Here is a relevant equation from macroeconomics:

(private sector borrowing/saving) + (public sector balance) = BoP current a/c balance

(S - I) + (Tax - G - Tr) = BoP Current a/c balance
 
All of the EU nations run a fiscal deficit, but many of them have a national surplus (current a/c surplus).

Ireland has a huge fiscal defict, but this year we will have a surplus on the current a/c of the Balance of Payment.

So the Govt will borrow, but the nation as a whole will save.
 
RMCF said:
Don't believe Germany has no debt.

Surely any countries which has to go to the financial markets and try to sell bonds is in debt? No?

And Germany had a bond auction partially fail only a couple of weeks ago.

From what I gather, all countries seem to be in debt. Or are China not in debt, as they seem to be lending money to the rest of the world?

And if every country is in debt, who do they owe it to?
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Again, be careful to distinguish between Govts and nations.

The German govt runs a deficit and has build up a debt, like most other Govts.

But the German nation runs a 194 bn USD external BoP surplus.

So I suspect the German nation, incl all sectors, has net external assets.
 
Here is some data from 2009 on the EU surplus / deficit:

[broken link removed]

EU27 = -128BN deficit = -1.1% of GDP (small)
 
Here is a quick list of some countries running external surpluses.

This means that these countries earn more income than they spend, even though their Govts may borrow. All data in USD bn.

Austria = 11
Belgium = 7
Germany = 194
NL = 66

DK = 22
Norway = 54
Sweden = 35

Switz = 86

Russia = 86

Japan = 150

China = 259

All these countries are net savers, and so are accumulating net foreign assets.
 
horusd said:
Running a balanced budget wouldn't work. As Sunny says countries need to borrow and not all borrowing is bad, in fact it can be wealth-generating. The problem isn't borrowing per se, it's imprudent borrowing. As a rule of thumb,borrowing to fund day to day spending is bad.

But we also have a ideological, social and economic problem: we are addicted to growth, and economic growth has become the objective and measure of well-being. The inherent premise is that the more wealth the better the country, the happier the people. This is patently false, or at least substantially false. As the philosopher Khalil Gibran (The Prophet) says "Beware of comfort that enters your house as a guest and becomes the master."
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I don't think there is any precedence for that assumption you are making. I was listening to a German radio station over the weekend and a commentator said that Australia was going to be debt free by 2020.
Governments are inherently incapable of making profitable investments as there simply is not the same incentive structure as with private companies. Governments cannot make economies wealthier.
Forcing politicians to pay for their promises out of taxation keeps them on the ground and a little bit more honest.

Purple said:
Two points;
We did pay back much of our debt during the bubble years but spending was/is so out of control that our debt exploded when the bubble burst.
Click to expand...

I don't think this is right. If I am not mistaken the level of total debt stayed at about €38bn, what did go down was the debt/gdp level, but actual reduction of debt never happened.
 
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