Borrowing

3 Key excerpts on "Borrowing"

• 

  eBook - ePub

  Adjustment and Financing in the Developing World

  • INTERNATIONAL MONETARY FUND(Author)
  • 1982(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  10 From this standpoint, both external debt and international reserve policies are important aspects of an economy’s overall portfolio management strategy.

  The argument made so far emphasizes the relationship between foreign Borrowing and demand management policies by pointing to the substitutability between foreign and domestic financing. However, the argument has to be taken one step further to bring out perhaps the most important of its ramifications. Domestic Borrowing is a means to transfer resources from surplus to deficit sectors within an economy. In the absence of foreign Borrowing and given a country’s resource endowment, output and growth depend on the propensity to save and the efficiency of investment in the economy. The possibility of Borrowing abroad adds to the resources that are available to the economy. Thus, although all macroeconomic policies can influence supply by their impact on the efficiency of resource allocation, foreign Borrowing, in addition, acts directly on the global availability of those resources and it thereby allows the economy to attain higher expenditure levels, providing in certain circumstances for higher growth rates than would be the case in its absence. Viewed from this perspective, it is clear that a medium-term framework is required for the formulation of macroeconomic policies in general, and external debt management policies in particular, thus linking, through the current account of the balance of payments, demand management with the saving-investment process and the longer-run evolution of the economy. This linkage makes clear the reasons for the concern in programs supported by Fund resources with the attainment of a sustainable balance of payments position, which is equivalent to seeking an appropriate relationship between savings and investment to ensure the realization of the economy’s growth potential.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  America's National Debt

  Examining the Facts

  • Thomas Arndt(Author)
  • 2022(Publication Date)
  • ABC-CLIO

    (Publisher)

  The Treasury can more or less continue to print or issue as many of these financial instruments as may be necessary to cover any gaps in the budget. In practice, however, there is a certain limitation to the Borrowing that can be carried out in this way, something which has emerged as an issue amid the record-setting Borrowing seen in the wake of the COVID-19 pandemic and the associated stimulus spending. “There is only so much the government can borrow without raising interest rates and crowding out private investment. That would hurt economic growth” (Sheiner & Wessel, 2020).

  Despite these theoretical limitations of unlimited Borrowing, the sale of Treasury-backed securities constitutes the primary mechanism by which Congress appropriates funds it technically does not have. This is a marvel of modern finance, and the system works beautifully under most circumstances. It can be thought of as the country’s credit card, metaphorically speaking, resorting to the financial appetite for investment opportunities among the public and the world as a whole. “The relationship between treasury departments and bond markets is little different from that between any other participants in the financial marketplace. Governments seek to lower their interest and administration costs while managing their maturity scheduled and widening the pool of potential investors. Bond buyers seek to increase their returns while maintaining liquidity and controlling their exposure to risk” (Macdonald, 2006, 473).

  There exists a strong but inaccurate perception among many Americans that the United States is indebted to a select few foreign governments that are believed by many people to be hostile to American interests, such as China, for example. However, the vast majority of the national debt is actually held domestically, not by foreign investors or by foreign governments. Domestic ownership amounts to roughly 70% of the total amount (Bartash, 2018). It is distributed among a mix of American investors, corporations, the Federal Reserve, and other organs of the U.S. government itself (known as intragovernmental debt).

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Leading Issues in Islamic Economics and Finance

  Critical Evaluations

  • Zubair Hasan(Author)
  • 2020(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  At times, the balances of payment deficits accumulate to unmanageable national debt making a country virtually bankrupt. The deficit problem is much bigger than in the above cases. The situation is perilous. The economy must be bailed out. The source of relief is again the IMF But conditions imposed are stringent for ensuring the eventual return of the loan granted.

  7.1 Introduction

  The term ‘deficit financing’ has wide applications even extending to TV shows. In economics, it connotes the amount by which a resource falls short of a given target; indicating most often a difference between cash inflows and outflows or the shortfall by which expenses or costs exceed income or revenues. In the context of developing countries, the term refers to government budgetary deficits. To define:Deficit financing is a practice in which a government spends more money than it receives as revenue the difference being made up by Borrowing or minting new funds. (Britannica.com)

  Having a balanced budget—equating revenues and expenditures of a government—seems an ideal fiscal policy. However, even as socio-economic dynamism may not usually allow a perfect synchronization of the two variables, there are occasions when circumstances may force governments to run into a deficit. There are others when they may find it expedient to run a deficit. This has been true with reference to both developmental effort and crisis management. The concept of deficit is not as simple as it looks. Various indicators of deficit in the budget may be noted, as delineated by Jose (2016 ):

  • Budget deficit = total expenditure − total receipts
  • Revenue deficit = revenue expenditure − revenue receipts
  • Fiscal deficit = total expenditure - total receipts except Borrowings
  • Primary deficit = Fiscal deficit − interest payments
  • Effective revenue deficit = Revenue deficit − grants for the creation of capital assets
  • Monetized fiscal deficit = that part of the fiscal deficit which is covered by Borrowing from the central bank.

  Sign up to read

  Learn more about book