The great mechanics of debt, myth, realities and secrets of a system that goes beyond us

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A contemporary paradox

Never in modern history have States been so indebted.

The figures give rise to vertigo: the United States exceeds the $34 trillion in federal debt ; France is close to 114 % of GDP ; Japan flirts with 260% of GDP. 

Even the Gulf countries, rich in hydrocarbons and holders of colossal sovereign funds, regularly issue debt.

How can we explain this paradox?

How can an immensely rich country be as indebted as developing countries that are in debt to finance basic infrastructure?

Who are the creditors and why do they lend?

Is debt an infinite mechanics, consubstantial to modern capitalism, or a trap that threatens global stability?

And above all, what happens when a state decides not to repay any more?

Let's dive into the heart of the systemic mechanism of public debt and try to popularize concepts, explore concrete examples and learn from recent history.

The aim is to make a phenomenon that is often perceived as opaque but which structures the global economy intelligible.

I. What is public debt?

1. Simple definition

Public debt corresponds to the total General government borrowings (central, local, social) to finance their cash requirements.

Unlike a household, a state does not fully repay its debt: it proceeds by bearing (rollover)

This means that as bonds mature, it issues new bonds to repay the old ones.

The debt is therefore permanent But its relative size (relative to GDP) can increase, stagnate or decrease.

2. Debt instruments

• Treasury bills : short-term securities (a few weeks to a year), very liquid.
• Sovereign obligations Long-term securities (5, 10, 30 years, sometimes 100 years).
• Concessional loans : IMF, World Bank, bilateral banks.
• Eurobonds (eurobonds): securities issued in foreign currencies, often in dollars.

3. Key indicators

• Gross debt : total amount outstanding.
• Net debt Gross debt minus financial assets held.
• Debt/GDP ratio : measures the debt against the annual wealth produced.
• Interest expense : amount of interest payments related to government revenue.

II. Who lends whom?

1. Creditors

• Domestic investors banks, insurers, pension funds.
• Households, via their financial products (life insurance, booklets, funds).
• Foreign investors : central banks, sovereign wealth funds, asset managers.
• International institutions : IMF, World Bank, African Development Bank.
• National central banks : who buy on the secondary market (quantitative easing).

2. Figures

• United States (2025) :
  • 66% owned by private investors.
  • 12.6% by the Federal Reserve.
  • 20% from federal funds (e.g. Social Security).
  • Among foreigners: Japan (1 100 billion) $), United Kingdom $), China $).
• France :
  • Over 55% of sovereign bonds held by non-residents.
  • Public debt - 114 % of GDP.
• African countries :
  • Very high share of foreign currency debt.
  • Strong dependence on eurobonds in dollars, making these countries vulnerable to fluctuations in the dollar and US rates.

3. Why do they lend?

Because sovereign bonds are perceived as:

• Secured assets : especially the American Treasures, used as a global reference.
• Liquid placements : they can be purchased/sold easily.
• Diversification instruments : secure the wallets.
• Collateral : serve as a guarantee in countless financial transactions.

III. Why are states in debt?

1. Short-term reasons

• Budgetary deficits chronic.
• Response to crises pandemics, wars, natural disasters.
• Economic recovery to support activity during recession.

2. Structural reasons

• Public investment (roads, hospitals, schools, energy transition).
• Social protection and pensions.
• Military and strategic expenditures.
• Sometimes, prestige projects or poorly designed (white elephants).

3. Link with capitalism

In globalized capitalism, public debt plays the role of channel between global savings and investment needs. Surplus countries (China, Germany, Gulf) recycle their surplus by purchasing US, European or Japanese debt. This is what economists call the « Global savings glut – Excess global savings».

IV. Special cases: United States, Japan, Europe, Gulf

1. The United States: Debt as a World Currency

• The dollar is the main international reserve currency.
• Treasury bills are non-risk-free assets.
• The United States benefits from Exorbitant privilege : they can go through massive debt because the whole world wants their titles.
• The Fed does not buy directly from the Treasury but from the secondary market. The image of « banknote board » is therefore caricatureal.

2. Japan: Domestic Debt · Global Voices

• Debt > 250 % of GDP.
• But mainly owned by residents (banks, pension funds).
• Abundant domestic savings → stability.
• Example which illustrates that the detention structure is more important than the absolute level.

3. Europe and France

• Constraint by European budgetary rules (3% deficit, 60% debt) has been loosening for some time.
• But supported by the ECB (quantitative easing, PEPP during the Covid).
• Risk: High dependence on foreign investors.

4. Gulf countries

• Colossal resources and sovereign wealth funds (QIA, PIF, ADI).
• However, they issue debt to diversify sources of financing and create a Domestic rate curve.
• Example: Saudi Arabia, despite its oil, issues bonds to finance Vision 2030.

V. Comparison with households

1. Similarities

• Debt service (interest).
• Dependence on the lender.
• Risk of excessive debt.

2. Differences

• Households must repay in full; States roll their debt.
• Households cannot raise taxes.
• Households cannot create money.
• States « do not fail » in the legal sense: they may be lacking or restructured.

VI. Sovereign Defects

1. Recent examples

• Argentina Repeated defects (2001, 2014).
• Greece (2012) : 53% discount on $200 billion €.
• Zambia (2020), Sri Lanka (2022), Ghana (2022), Lebanon (2020).

2. Consequences

• Exclusion of contracts.
• Fall of change.
• Inflation galloping.
• IMF programme with austerity.
• Recession and social tensions.

3. Modern mechanisms

• Collective action clauses (CAC): avoid blocking by a few creditors.
• Common G20 framework Coordination between public and private creditors.

VII. Is the state insolvent?

• In its own currency Technically no (can print). But risk of hyperinflation (Zimbabwe, Venezuela).
• Without monetary sovereignty : yes (e.g. Greece in the euro area).
• With foreign currency debt : major risk (devaluation → heavier debt).

VIII. Are there debt-free countries?

Some exceptions:

• Macao : zero public debt.
• Hong Kong : almost zero debt.
• Norway : negative net debt (thanks to the oil fund).
• Kuwait : very low debt.

But in the vast majority of cases, the debt is structural and plays a role in the economy.

IX. Domestic savings as an alternative

1. French example

• Household financial heritage: €.
• Life insurance: $2,000 billion €.
• A large part invested in state bonds → the state already owes to its citizens.

2. Specific instruments

• BTP Italia : obligations for Italian households.
• British NS&I : Savings bonds.
• France could strengthen the general public obligations.

X. How far is it tenable?

1. Rule of sustainability

Debt is sustainable if:

• The interest rate is lower .
• The primary balance is surplus over time.
• The debt is in local currency and in the long term.

2. Warning signs

• Interest charge > 15% of tax revenue.
• Debt in currencies too high.
• Dependence on non-residents.
• Chronic primary deficiency.

3. Political reality

• Rich countries can remain indebted for a very long time as long as they inspire confidence.
• Poor countries face a vicious circle: debt → refinancing → default.

XI. The African case and Senegal

1. The external debt trap

• Solid borrowings in dollars (eurobonds).
• Trade shocks (petroleum, cocoa, cotton).
• A narrow tax base.

2. Senegal (2024–2025)

• Revision of debt statistics: hidden liabilities disclosed.
• Temporary suspension of the IMF programme.
• Risk of credibility and increased cost of funding.

3. Solutions

• Increased transparency.
• Develop domestic debt in local currency.
• Extend maturity.
• Investing in productive projects.

Conclusion: Debt as a mirror of confidence

Public debt is neither an anomaly nor a fatality. It is the tool by which global savings are recycled. 

Rich states benefit, poor countries suffer from it. 

The United States enjoys an exorbitant privilege thanks to the dollar; Japan demonstrates that a colossal debt can be sustainable if it is held internally; Greece and Sri Lanka recall that a defect is still possible.

The real key is trust. As long as investors believe in a state's ability and willingness to serve its debt, debt remains manageable.

But when trust cracks, the system breaks, and debt becomes a trap.

The question is therefore not: « Do we have to get into debt? »but: « What debt, for what use, and with what guarantees of sustainability? ».