Short answers, pulled from the story.
Government debt, also called public or sovereign debt, is the total financial liabilities of the government sector, including bonds, bills, loans, and pension obligations. It is typically measured as gross debt of the general government divided by GDP, which allows comparisons across countries of different sizes. The IMF's Government Finance Statistics Manual 2014 sets the international standard for these calculations.
In 2020, global government debt reached $87.4 trillion, equal to 99% of global GDP. That share was the highest since the 1960s. Government debt made up almost 40% of all debt worldwide, including corporate and household debt.
Governments borrow to act as economic shock absorbers during recessions, wars, and public health crises, when revenues fall and spending needs rise simultaneously. They also borrow to finance long-term investments like infrastructure. Without borrowing, governments would have to raise taxes or cut spending during downturns, which would make the economic situation worse.
The Bank of England's founding in 1694 revolutionized public finance. It helped establish a system where creditors were part of the governing coalition and had formal power to authorize borrowing. This made lenders more willing to hold British debt, and from that point on the British government never defaulted on its obligations. Other countries eventually adopted similar institutions.
Excessive debt can raise interest rates and crowd out private investment. A World Bank study found that debt above 77% of GDP for developed countries slowed economic growth. Very high debt also risks triggering a debt crisis, where a government cannot make payments or borrow more. Governments that issue their own currency face the additional risk of inflation or hyperinflation, as seen in Weimar Germany in the 1920s.
Unfunded liabilities are obligations a government has committed to pay in the future that are not covered by dedicated funding. In the United States, the 2018 trustee reports found that Medicare faced a $37 trillion unfunded liability over 75 years and Social Security faced $13 trillion. Neither amount is included in the official U.S. government debt figure, which makes the true fiscal picture larger than the headline number suggests.