Governments as we know, get most of their income through taxes, but that is not always enough to cover their spending. When there is a shortage, borrowing often becomes the solution. The concept of borrowing is not new, but its scale has grown in recent decades, especially after many countries have faced financial troubles and of course, the effects of the pandemic.
Most governments raise money through bonds, which is effectively a promise to repay an investor at a set date, usually with interest paid in between. UK bonds are known as gilts and are generally seen as safe, with pension funds, banks and insurers buying large amounts.
Other countries also turn to bond markets where investors, including pension funds and mutual funds, buy bonds for steady returns. In the United States, Treasury securities are a main tool for borrowing. The Federal Reserve, banks and investment funds hold large shares, while foreign governments also play a role.
Charles Urquhart, Fixed Income Resources, explained, “Governments do most of their borrowing in the bond markets. Put simply, they sell bonds — IOUs that promise to pay investors back a certain sum with interest at some point down the line. The buyers come from in-country institutions like banks, pension funds and insurance companies, to global investors like sovereign wealth funds and foreign central banks.
“For instance, the U.S. Treasury market is the most liquid and the deepest market in the world, with more than $27 trillion outstanding. Investors buy Treasuries because they are supposed to be risk-free — backed by the “full faith and credit” of the U.S. government. Other nations sell their own sovereign bonds, with yields depending on creditworthiness, currency risk, investor confidence and other factors.”
Borrowing is not limited to bonds. Governments may borrow from global organisations such as the World Bank or the International Monetary Fund. This is especially common among developing economies, which face higher costs on private markets.
Urquhart added, “Central banks also contribute with policies such as quantitative easing (QE). When the Fed or the ECB purchases government bonds in the open market, they aren’t “lending” directly to the government, but they are helping to create more demand that drives borrowing costs lower. During the 2008 crisis and the pandemic, this tool proved more critical.”
How Much Do Governments Owe?
The amounts involved are pretty large. In the UK, government borrowing reached £121.9 billion in the financial year ending March 2024. September alone saw borrowing of £16.6 billion, according to government reports. The national debt now stands at around £2.8 trillion, close to the size of the entire UK economy.
The United States has even larger numbers. By December 2024, gross debt reached $36 trillion, of which $29 trillion was debt held by the public. That is about 97% of US GDP. Around $8.5 trillion of this was held abroad, with Japan and China among the biggest foreign investors.
Globally, debt has also surged. Fitch Ratings reported that government debt worldwide reached $88 trillion at the end of 2022. Developing countries together owed $8.8 trillion in external debt by 2023, according to the World Bank. For the poorest nations eligible for concessional World Bank loans, the figure was $1.1 trillion.
Who Lends To Governments?
Domestically, lenders include pension funds, banks and insurance companies. In the UK, gilts are bought heavily by financial institutions at home and overseas. In the US, investment funds and the Federal Reserve itself are major creditors. The central bank more than doubled its holdings of Treasuries during the Covid-19 pandemic to stabilise markets.
Foreign investors also hold large amounts. In the US, the share of public debt held abroad rose from 5% in 1970 to 30% in 2024. Japan and China account for $1.8 trillion between them. In the UK, overseas funds are also regular buyers of gilts, drawn to their reputation for safety.
Developing nations, facing tighter credit, often turn to global lenders. The World Bank reported that in 2023 alone, developing countries spent a record $1.4 trillion on servicing external debt. Interest costs hit $406 billion, the highest in 20 years. For some of the poorest countries, debt service absorbed up to 38% of export earnings.
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Why Does Borrowing Allow?
Borrowing allows governments to spend on services, infrastructure, and economic recovery without raising taxes. Raising taxes can hurt demand and profits, which in turn lowers revenue. Borrowing brings a way to fund projects while keeping money circulating in the economy.
But high debt comes with costs; interest payments take up an increasing share of budgets. The UK’s debt interest reached a 20 year high in 2023 as interest rates rose. In developing nations, high interest bills have squeezed spending on health and education.
There are also risks of default… more than half of the world’s governments have defaulted since 1960, according to research from the Bank of Canada and the Bank of England. Defaults usually follow economic or political turmoil, and they can make borrowing far more expensive in the future.
What Have Experts Observed?
Chad D. Cummings, Esq., CPA, Chief Executive Officer at Cummings & Cummings Law shared, “Here are my observations for your audience compiled from recent discussions with my clients and lectures to my students:
1. “Governments borrow from central banks that fabricate money digitally, destroying currency value and enabling reckless deficits without consent. Governments do not fund deficits through taxpayer revenue or foreign lenders. The U.S. Treasury issues bonds that the Federal Reserve buys using reserves created with keystrokes. This digital fiat did not previously exist. The Fed’s balance sheet ballooned from $800 billion in 2007 to over $8.9 trillion by 2022, decoupling currency from productive output. This dilutes every existing dollar, fuelling inflation while removing any hard constraint on spending. It is monetary alchemy (legalised counterfeiting) and voters are not part of the equation.”
2. “Sovereign bonds depend on infinite refinancing and are increasingly unstable, especially as global demand weakens. The U.S. government must roll over over $10 trillion in maturing debt every 12 months, a treadmill that assumes endless buyers. This is a Ponzi dynamic. Bond values are upheld only by central bank intervention and political pressure. When foreign buyers like China reduce holdings—as they have for six straight quarters—the system cracks. Downgrades, like Fitch’s in 2023, signal that the illusion of “risk-free” is breaking. A sudden demand shock would cripple pensions, freeze credit markets, and spike rates instantly.”
3. “Quantitative easing is legalised theft from savers, inflating asset bubbles while hiding wealth transfers to elites. QE is not neutral stimulus. Between 2020 and 2022, the Fed injected $4 trillion into asset markets. That drove home prices in cities like Austin up over 70 percent, not from demand but from manipulated rates and excess liquidity. The beneficiaries were private equity funds and institutional landlords. Retirees, savers, and wage earners paid the price through dollar debasement. QE is a political weapon disguised as macro policy.”
4. “Fiat currencies always collapse, and Modern Monetary Theory simply accelerates the endgame. Since the Fed’s founding, the dollar has lost over 96 percent of its value. At 5 percent inflation, real purchasing power halves every 14 years. MMT claims deficits do not matter because the state can print endlessly, but this logic is what destroyed the German mark and Zimbabwe dollar. Collapse begins not when CPI hits 20 percent, but when energy exporters refuse dollars. That shift has already begun, as BRICS nations hoard gold and de-dollarise trade settlements.”
5. “The only rational move is to exit fiat and secure assets in hard, sovereign-resistant vehicles. The government, regardless of which political party is I power, is beholden into the Federal Reserve and lacks the mandate and fortitude necessary to implement corrective action, particularly considering that over a century has passed since the inception of the Federal Reserve which is now firmly rooted in the American and global economic system.
“If I sound pessimistic, it is because I am. Therefore, it is up to each individual to act and focus on elements within their limited sphere of control and influence: Dollar exposure must be reduced across portfolios. Treasuries, muni bonds, and even bank savings accounts are now slow-motion losses. Sophisticated investors are reallocating into Texas farmland, vaulted gold, Caribbean passports, and cold-storage crypto. These are not fringe strategies… they are rational considerations. Legal structure options include Cook Islands trusts, Nevis LLCs, and grantor trusts with crypto custody. Delay ensures exposure. Real protection requires acting before capital controls or currency crises begin.”
Urquhart concluded, “The takeaway: governments borrow from a wide array of global investors, from individual savers to foreign governments. Their bond market’s health is credibility in action. Strong institutions lead to lower borrowing costs; weak fiscal or political credit, to higher yields.”