Public debt is also sometimes referred to as government debt. It is a term for all of the money owed at any given time by any branch of the government. It encompasses public debt owed by the federal government, the state government, and even the municipal and local government.

Public debt is, in effect, an extension of personal debt, since individuals make up the revenue stream of the government. Public debt accrues over time when the government spends more money than it collects in taxation. As a government engages in more deficit spending, the amount of public debt increases.

Public debt can be made up of all sorts of different types of debt. A great deal of public debt is external debt, which is money that is owed by the government to foreign lenders, either in the form of international organizations, other governments, or groups like sovereign wealth funds which invest in government bonds. Public debt is also made up of internal debt, where citizens and groups within the country lend the government money to continue operating. In some ways, this is a lot like lending to oneself, since ultimately the responsibility for public debt falls back on the very people lending money.

Governments with strong economies, who are well trusted in the world, are able to raise funds by issuing their own securities, usually called government bonds. Individuals, other nations, and groups buy these bonds, and the government promises to pay them back at a certain, usually fairly good, interest rate. Less robust governments, who do not have the trust from the world to be able to issue bonds and expect people to buy them, may turn to international institutions, or even normal banks, to give them loans, usually at less favorable rates.

Some people use the term public debt to refer not only to money directly owed, in the form of securities that can be collected on, by a government, but also on the pool of money owed in the form of services and payments promised. For example, pension payments the government may owe to its employees, or contracts the government has entered into but has not yet paid, may also be included in some calculations of public debt.

Public debt is usually broken down not only by an internal and external divide, but also by the length of the loan made. Short-term public debt is foreseen to last only one or two years, so the turnover rate is fairly high. Long-term public debt is designed to last more than ten years, with some long term debt lasting considerably longer than that. Mid-term public debt lasts anywhere between three and ten years.

As with all debt, public debt is sometimes defaulted on. In the case of nations defaulting on their debt, things get very complicated. Supranational organizations, most notably the International Monetary Fund, have a great deal of power granted them by the international community to ensure nations don’t default on their debt, and to take control over a number of financial issues if it looks like they will. On levels lower than the national level, public debt is usually guaranteed by the nation they’re a part of. So if a state or municipality were to default on their public debt, that cost would then be absorbed by the country itself. For example, in the 1960s the city of New York went effectively bankrupt, and both New York State and the federal government of the United States were required to help bail it out.