II.

Kinds of Debt

National public debts are contracted chiefly by incurring interest-paying loans, in the form of bonds, bills, or notes. Historically, these loans have been undertaken to raise money for wars and national defense and to finance public works. More recently, governments have taken loans to meet national budgets or expenditures that are not covered by revenue, or to seek to improve economic conditions by counteracting unemployment or depressions, or both, with deficit budgets. Not all financial authorities agree that nations should carry a high level of public debt, as it can be inflationary. Rather than the level of debt, however, the most important consideration is the capacity of a nation to service its debt.

Some long-term maturing debt is repaid by short-term borrowing that does not add significantly to the total debt level. The redeeming of public debts includes the repayment of principal on maturity, amortization through periodic payment of part of the principal, and the buying up of government securities on the open market. Most government loans fall due at fixed dates, but a number, known as perpetual loans, have no definite expiration dates, and governments floating them have the privilege of redeeming them when convenient or desirable.

Most government loans are not secured by physical assets, however they are regarded in law as contracts carrying an obligation on the part of the debtor to repay. Nevertheless, governments, when hard-pressed during economic crises or as a result of political upheavals, have sometimes refused to repay their public debts.