Hello everyone. I hope you're all doing well. Today I want to talk about money. Actually almost all the time I talk about money. But today I want to share something that I recently learned. I had a hard time understanding it before but now I think I know the gist of it. So for quite a while I was trying to understand how the national debt works. Because for the past few months, especially since the back end of last year, we've been hearing that the American death crisis can spiral out of control and can put the world economy in chaos. So I wanted to understand what this was and how it could affect the world economy. But to my surprise or maybe to my inability I couldn't understand it even after watching a few explainer videos. But today I finally got it. And I want to share it with you all.
So a little background on this America is arguably the biggest economy in the world and as of now probably the biggest oil producer also. So it is expected that this economy will be in a healthy shape. But that isn't the case. It has debt far bigger than what is considered normal. If my information is correct then the amount is roughly around 36 trillion US dollars. Now how does this debt work? Let's go over an example. Almost all trades around the world or at least a big majority of them are conducted in US dollars. So every country has a reserve of US dollars because it is the only currency that can be used in international trade. We should also remember that it is the global reserve currency as well. Now in normal economics if you put all your savings under your mattress then it will depreciate. The same goes for this reserve every country has of US dollars. So America made an offer to all of them. An offer. That is to give all their reserve money to America and in exchange America will pay them in interest over a certain number of years and after those years are done America will pay all the money back. In exchange. America gets to use their money now. So this is like giving someone a loan and charging interest on that loan. The next question would be why should countries accept this offer. The thing is USD being the reserve currency makes America liable for the money. The trust is there. So America has been taking all this money for so many years now that the amount of debt accumulated has reached 36 trillion.
So just like any business. If America defaults on all this money then suddenly the world is out on 36 trillion. And what will happen to the world economy when 36 trillion are wiped out of it? I'll leave it to your imagination. Yeah it fried my brain as well when I understood it.
