>In my opinion, not all government borrowing is bad. I like to use the analogy of a credit card vs. a mortgage. Municipalities, quasi-government agencies and States sometimes borrow money, and the federal government borrows money too. To me, the difference is that the former are required to borrow only for a specified purpose (often with approval of the voters), they’re required to budget for “debt service”, which includes paying down the principal, the purpose of borrowing is most often to purchase a capital asset that will be long-lived, and that the interest rates obtained are typically fixed. I think that this is most analogous to a mortgage for a home. On the other hand, the federal government seems to borrow whatever amount expenses exceed revenues, doesn’t have to appeal to a higher authority to increase its borrowing, doesn’t have to budget for paying off the principal, doesn’t usually spend the borrowed funds on purchasing long-term capital assets, and at least in part borrows using short-term bills that renew at market interest rates periodically.
Perhaps this analogy can be helpful to explain why the Federal deficit and debt are worrisome, but the state borrowing $50M to fund a new school or transit improvement is not.
Originally posted at AGA Weblog as a comment for Economistmom, by me.