The United States current incurred debt is massive. So massive, in fact, it is currently up to $20.1 trillion and counting. To place this in perspective, the national debt has grown by more than $4 billion per day, $170 million per hour, $2.8 million per minute and more than $47,000 per second. So, why has the national debt grown so much and what economic principles are involved in how it has gotten to this point?
There are two entities in which the United States are indebted to. Two-thirds of the debt are owed to the general public, who buy into treasury bills and bonds. The “general public” is described by The Balance’s article as being any individual, corporation and other governments (predominantly China). The other source of this debt is intragovernmental debt. This is described as any debt that is occurred from programs within the government. Social Security provides for the majority of this debt. The Treasury is in debt to organizations with Government Accounts in which the U.S. government owes money to. The United State’s debt is the largest out of all single countries. This means that not even the European Union has a greater amount of debt, which has 27 countries currently. This is sad considering all the problems Great Britain has had with the EU in the past year.
The biggest question to answer for the non-economist is, “How did the debt get so big?” Well, there are a variety of reasons why it has grown substantially (three, to be exact).
The first is because of large budget deficits. Every program added, and every tax cut passed adds to the debt. President Obama added the ARRA Stimulus Package, tax cuts and $800 billion in military spending. This gives him the largest budget deficit of any president currently. President Bush and President Reagan came in second and third, respectively, with tax cuts, Medicare budget increases and increased defense spending.
Secondly, every president borrows from the Social Security fund, which provides for a downfall because this is money that should have been invested rather than used as a surplus and given back to the American people.
Third, countries like China love to lend to America so the U.S. will continue to purchase China’s exports. Other important reasons as to why the debt continues to climb include Congress raising the debt ceiling consistently and the Federal government benefiting off low interest rates. I do not know about everyone else, but I’m sick and tired of hearing Congress talk about introducing a balanced budget amendment when they cannot stop increasing the debt ceiling and incurring government shutdowns every few years!
In relation to how economic principles are a factor within the rising debt, we can first look at how consumers benefit from this debt increase in a short run, where at least one input is fixed, and other inputs are variable. The economy begins to see a boom in military spending, construction projects and health care spending. There is an increase in jobs with firms being contracted to hire new employees. These employees then spend their new-found wages on products that help to drive the economy forward and provide the U.S. economy with more revenue.
During a long run period, which is when the quantities of all inputs can be varied, is also an important factor in the economic principles of our economy. This does not bode well for the national debt as consumers and foreign countries that have invested in U.S. Treasury bonds may demand higher interest rates in which, the U.S. government may not be able to pay.
Demand is also another important factor when it comes to economic principles affecting our economy. This is when a want or desire is met with having the correct resources to attain this want. The national debt has been increased by a lower demand for U.S. Treasurys, which also increases interest rates. In turn, this puts a diminished value on our dollar. This means that when foreign governments are paid, they are being paid less than what our currency is worth. This is fatal to our economy since it also drives demand down.
This country has its fair share of problems when it comes to trying to solve the national debt. It is growing every day and there seems to be no real way to stop it. This is going to leave my generation swamped in debt with little to no funds left in the Social Security fund as well. Although I do not have the answer to our country’s debt problems, it would be safe to say that many instances, such as increased deficits and multiple recessions could have been prevented had the U.S. slowed its borrowing down for a period enough to evaluate the country’s economic situation.
