NATIONAL DEBT comprises the financial obligations of a national government as distinct from the financial obligations of individuals or business enterprises within the nation. It is also to be distinguished from the financial obligations of other gov ernmental units than the national government itself. Although there are a great variety of characteristics attaching to indebted ness, fundamentally all debts are similar in that they represent obligations on the part of debtors to pay certain sums of money to creditors or owners of certificates of indebtedness. There may be differences in the time elapsing between the date the debt is incurred and the date when the principal is due, in the rate of interest for which the debtor obligates himself, in the character of the collateral securing the debt, in the priorities of the creditor on default of the debtor, and in many other features of the obli gation, but the basic attribute of all debts is identical, i.e., a promise to pay. The primary difference between national debts and private debts lies in the security for the obligation. A debt of an individual or of a corporation is usually secured by specific property of the debtor, as in the case of a mortgage bond or a collateral bond, or by the general assets of the debtor as in the case of a debenture bond, or an account payable. National debts are secured only by the general credit of the nation and are not secured by any publicly owned assets. In the event of default by private debtors of interest or principal, the creditor may, subject to the terms of the obligation, acquire the assets of the debtor or the proceeds from the sale of such assets.
If a nation were to default on its contractual obligations, the creditor could not proceed against public property and under most laws could bring no legal action for redress. However, usually the best of private bonds sell at lower prices and yield higher returns than do most government bonds, indicating the general absence of risk in the latter. Of course, there are many exceptions to this tendency, especially when governments are threatened with internal dissension.
have been both numerous and popular in France and in some other continental countries where patriotism and cupidity combined have often resulted in the raising of very large amounts in lottery loans. A State enjoying good credit can with little difficulty borrow enormous sums without any undertaking at all to repay the principal at a particular date. The explanation is to be found in two further points which also demonstrate the difference between State and private borrowing. It will easily be seen that the better the credit of the borrower the more ready will be the lender to advance for a lengthy period, and because the credit of the State is usually the highest credit of all there is seldom difficulty in procuring loans for an almost interminable period. A further explanation, however, is to be found in the fact that the loans themselves form what is known as marketable securities, that is to say, the holder of them is able at any time to convert his holding quickly into cash by selling it to some other individual. Moreover, in the United Kingdom and in some other countries it is customary for all long-dated Government stocks to be trustee securities, which means that they are in the class in which trustees are specially authorized to invest trust money. This again in its turn means that trustees usually seek for stocks which are not redeemable at some early date. Therefore, in the case of the British Government it has been quite customary for many hundreds of millions to be raised on terms making the stocks practically irredeemable. The form in the prospectus is usually to say that the stock will be redeemable on and after a certain date at the option of the State, which means, of course, that the Government may, or may not, redeem after that date, according to its own convenience.