Financial crisis and government debts- to whom are the governments indebted?

Somebody probably asked a similar question at some point, or maybe not, maybe everybody gets it but me, but I just don't understand to whom are the governments indebted and why can't they start from zero? I'm probably extremely naive to ask such a question, but here it is.





Please try to answer it as simply as you can.... Otherwise I probably won't understand it.





I googled financial crisis and I think I get it why the financial crisis happened (banks, mortgages,broken promises, etc), but what I don't get is to whom are the governments indebted? To banks? Haven't governments been bailing out banks?? I don't get it at all...





I just want to understand why it is necessary to curb public spending by cutbacks in most European countries because the countries have massive debts- to whom???|||Everyone is the short answer:





(1) Other countries %26amp; governments


(2) Businesses


(3) The general public


(4) Financial agencies of all three: governments, companies, and individuals.








The simple answer as to why you can't just "start over" is a lesson found in accounting 101: every financial action has at least two sides. For debt, you have the person who owes the debt as a liability and the person who owns the debt as an asset. "Starting over" sounds "fine" until you figure out who, exactly, is on the other side of the debt.





For example, many companies in the EU are heavily invested in the debt of countries of Greece, Spain, %26amp; the like. Default on those debts and you will likely bring some of those companies down....fine unless you happen to work for one.





The debt of the UK is widely owned by pension %26amp; retirement plans in the UK and Europe and the US. Default and many grandmothers %26amp; grandfathers around the world will be much poorer. Ditto the debt of the US.








The second part of "the problem" so to speak is that a default not only "starts over" as far as what you USED to owe...it starts over how much you CAN borrow tomorrow. If, for example, your neighbor borrowed 1000 from you last month and then told you this month that they cannot pay you back. Sorry, starting over. How much money are you going to let them borrow next month?





Exactly. Zero.





That is the real problem for countries like the UK and the US (the EU has more complicated situation). If the population of those two countries isn't prepared to raise taxes high enough tomorrow to pay for every single penny they want to spend before they spend it -- rain or shine, good times %26amp; bad -- then they simply cannot default. Default would end their ability to borrow freely whenever and however they want to.|||You and me and everybody else.


Countries borrow from their citizen, from citizen in other countries and from the financial institutions that they are saving with grants.


In the US they are called Federal Bonds, in other countries they may have other names.


A lot of the debt of one country may be held by another country - Singapore and the Emirates in the Gulf own a lot of US and European debt.|||To put it as simple as possible .


When a govt wants to borrow money, they issue govt bonds (Gilts)


These are put on the stock market where traders purchase them %26amp; gain interest which the govt pays to the traders.ie.Insurance companies , pension funds etc


Eventually the govt have to buy them back , otherwise they would be paying interest for ever


At present ,for every 拢1 the country earns something like 17p is paid in interest to these traders on the international markets.hence the mess we are in at the present moment