Causes of the US National Debt

Causes of the US content DebtHow big is the US National Debt and history?By definition, the amount of funds owed by the federal official presidential term to creditors is referred to as the US National Debt. The National debt is categorized into two public debts and giving medication. Government debts are always on the tog up receivable to the increase in government using up and expenditure, unpaid credits by debtors, decreased taxes among others (Zezza, 2014). The US National Debt has a historical increment due to the rise in debt as a share of the gross domestic product during the recession periods and times of war. A combination of inflation and growth of GDP results in decreased issue debt. The field debt of the US, for instance, increased after the World War II to 113 % in the year 1945 (Zezza, 2014). However, this figure later went down in the subsequent thirty-five historic period. In the past few decades, thither have been concerns of how sustainable the fiscal poli cies of the US National government are based on the rise in be of medication and the growing number of old people in the US population (Zezza, 2014). According to Sakbani (2013), the public debt of the US was at $ 14.3 trillion of the overall GDP part the inter-governmental debts were $5.4 trillion. This totals to about 10.6% of the 2015 GDP. Sakbani (2013) further notes that more than 45 % of the US national debt in 2016 was by foreign investors with Japan and China in the lead. Precisely, an analysis of the US national debt reveals that the debt has had a constructive decline since the year 1789 apart from surrounded by 1835 and 1836 (Chorafas, 2014). The debt was at the highest level during the first term presidency of Harry Truman which was during and after the number World War. After the second world war, there was a notable fall in the national debt in the US. The US national debt was at its last(a) point in 1974 under the leadership of Richard Nixon (Sakbani, 2013). How ever, after 1974, the national debt started appreciating and this has been the trend since then. But it stagnated during Bill Clinton and Jimmy Carters presidency. In the mid-eighties there was a tremendous increase in national debt due to Ronald Reagans decision to lower taxes and increase military expenditures. However, in the 1990s the debt went down when a reverse of the 1980s was implemented increased taxes, and lower military spending. Chorafas (2014) highlights that due to the financial crisis between 2007 and 2008 the public debt went extremely high.There seems to be a surge in national debt during the GW Bush and Obama administrations. Why?Therewas a considerable rise in national debt between the presidency of George Bushand that of Barrack Obama. This was from $ 5.768 trillion when Bush go forth officeto $ 14.071 trillion 735 days after Obama took office (Skidmore, 2011). This core that the recording of Bushs national debt was wrong. This is because inhis term as the pre sident there was a rise of $ 607 billion yearly hence theoverall figure could not be $ 5.768 trillion as indicated in the Treasuryrecords. Skidmore (2011) further explains that during Obamas era the nationaldebt considerably went high by an average of $ 1.723 trillion yearly. This sawthe figure go way up above the debt during Bushs presidency. However, it isnot possible to hold Obama responsible for this increase in debt. This isbecause the figures flow from the 2009s budget which Obama never signed. Thismeans that if the right account to Obamas accounts are to be analyzed thisshould trail down from the fiscal year 2010 and 2011 (Sakbani, 2013). Inaddition to a sum of $ 225 trillion that was included in the 2009 budget underhis signature. Aclose comparison of Obamas and Bushs spending and deficit reveal that Bushwas way far than Obama based on managing of the national debt. This agate line toilet be supported by Bush operated a total budget of 3.283 trillion in deficitspending for his eight fiscal years in office. On the other hand, Obamaoperated at a spending deficit of $ 2.826 trillion within his first two yearsin office. This means that while Bush operated at a deficit of $410 billion perannum, Obama operates at more than $1.4 trillion per annum, giving a differenceof more than 1 trillion between the two reigns. This analysis explains thecurrent surge between Obamas presidency and Bushs presidency regardingdeficit spending.What are the consequences of a large national debt? Is it going to hamper the frugal growth as some have claimed?Basedon an economic perspective, large national debt affects the economic growthnegatively. It is almost impossible for a government or country rather tosustaining a large and growing national debt. Some of the effects come from theside of investors who begin doubting the possibility of the federal governmentto continue servicing the economy and government spending (Boubekar et al.,2016). There are three major effects of lar ge national debts on a countryseconomic growth. First, large debt draws money away from national investmentswhich would earn then government some revenues. This is due to want of enoughmoney for the government to service effective investments. This would mean thatthe government is heavily spending, but there are minimal or no revenues beinggenerated hence lack of capital to be reinvested. There will be no growth inthe countrys economy. Secondly, large debts negatively influence taxation andspending by the government. This is because when the country is suffering fromhigh national debts, all the attention are focused on what the government cando to continue sustaining itself. This is where the government adjusts. AsBoubaker et al. (2016) put it when taxation is high workers and investors arenegatively affected by tax increment and can be left with little or no money toreinvest. Also, the tax increment leads to economic downturn from the side ofthe policymakers and investors. Policym akers find it challenging designingpolicies on tax spending in an purlieu where there is an extremely high nationaldebt. The economic growth is normally hard in such a situation based on the feature that there are no sufficient funds to fund any new challenges that arisealong the policy- reservation and policy implementation processes.Is it possible for the US to default on its debt in future? ExplainTheUnited States does not have any record of ever defaulting on national debt. Ifthis ever happens the results can be unimaginable. However, there have beencases when the House Republicans have resisted raising the house ceilingsurging the Congress house to cut on spending first (Johnson, 2000). It meansthat there are possibilities of the US failing to honor their national debtshortly. Precisely, the US can default their national debt in two main waysbankruptcy of the Congress to raise the debt ceiling, and is the Governmentdecides that the interests they are charged are way too high a nd resolve to not assumeing interests on bond, notes, and Treasury bills. In the first casescenario, failure by the Congress to raise the debt ceiling would mean high interestsrate on Treasuries, hence high costs on the consumer loan, mortgages, and othersuch services (Johnson, 2000).This will then lead to decline in the value of adollar and finally inability of the government to pay salaries and benefits totheir civil servants and retirees. On the other hand, in the second scenario,there would be a disaster as the value of treasuries in all the governmentssecondary markets would stagnate or go down hence Treasuries would be sold atdiscounted prices (Cline, 2013). The government would find it hard to auctiontheir treasuries hence making it hard for them to borrow money and pay bills.The default of US national debt would be extremely disastrous owing to theconfidence most investors have on the US markets.Why the Nobel winning economist capital of Minnesota Krugman is not as alarmed a s many others are concerning the high level of US National debt?Itis important to note that the overall national debt is usually a combination ofall loans acquired by the federal government from various creditors to financea deficit budget. In taking and utilizing loans, the government usually has afocus on increasing their tax rates for them to finance their currentgovernment spending (Zezza, 2014). Paul Kraugman can be said to be less alarmedon the high level of the US national debt due to his argument that there is noneed for investors or anybody else to worry about the level of the impedingnational debt of the US. In his argument, Kraugman makes several assumptions.Unlike others, Krugman argues that in as much as debt matters there are otherthings that matter most and that the government needs to spend more to get theUS citizens out of the current unemployment trap (Zezza, 2014). This shows thathe had no idea what harm the current high national debt has caused the US andthe impa cts a further increase in government spending will cause the US. ReferencesBoubaker, S., Rouatbi, W., &Saffar, W. (2016). The routine of multiple large shareholders in the choice ofdebt source. Financial Management,46(1), 241-387. inside 10. 1111/fima. 12148Chorafas, D. N. (2014). Kingdoms ofDebt in the public eye(predicate) Debt Dynamics of Europe and the US, 24-32. 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