I. Introduction
Sometimes the citizens of a country wondered whether the government should borrow money to pay its own expenses. Most people might think that if the government cannot collect enough money, then the government needs "to tighten its belt" but does not borrow money. If the main function of a government is to ensure the rule of law, why would the Government want to spend money? In addition, if the government borrows money, is it putting itself at risk of bankruptcy?
Answering the above questions, firstly we must establish that a government has to offer the best environment possible for the welfare of its citizens. For the foregoing reason, the government has to implement policies that have the greatest coverage, i.e. serve the
…show more content…
And in order to achieve these goals, the government needs money.
A government that borrows intelligently generates a multiplier effect on the country 's productive capacity. Because, the smart borrowing improves the conditions of the country and generates a highly profitable investment for its citizens and the government itself. However, an excess of debt can lead a country to bankruptcy.
II. Debt as a tool
The national debt is a tool that makes it possible to realize projects whose benefits are greater than the costs, but requires investments for which the country does not have the resources available. If the government finances these projects with debt, the projects are feasible, and the costs can be distributed at the time in such a way that those who pay them are those who obtain the benefits.
In addition, it is convenient to expand spending financed with debt, in order to counteract falling private demand and production. This policy is often convenient, since it avoids the waste of resources in a situation of recession. On the other hand, as Eggers suggests, the above also enables a Government to spend more than taxpayers are willing to finance, allowing for inefficient expenses that are inherited to future Governments. In addition, the periods of maturity and high-interest short-term debt, can destabilize the fiscal situation and the economy of the country.
III. The excessive indebtedness and the respond to a crisis
One of the tools that the state has to deal
Overspending is a pertinent problem facing the lawmakers in Congress. In 2012 discretionary spending reached $1.3 trillion and mandatory spending $2 trillion, while only bringing in $2.5 trillion in revenue. Since the turn of the century back in 2000, non-mandatory spending by the government has topped out a whopping $16.1 trillion just in the past 13 years (Boccia, Frasser & Goff 2013). This persistent overspending on programs and services that are not necessary to the functionality of the country is what is causing the deficit to rise year after year. To remedy this issue the government must either increase the revenue it brings in through taxes and trade or reduce the amount of money it spend or perhaps even both. In 2012 thirty-one cents of every dollar that Washington spent was borrowed (Boccia, Frasser & Goff 2013). Most of which went to large programs such as Social Security and Medicare and if these large, growing programs, or just the budget in general, do not undergo financial reform it could spell disaster for the economy and fiscal state of the nation.
In the book Hamilton’s Blessing, Gordon uses economic history and theory to explore the start, rise and decline of the United States debt. Gordon opens his book by stating that this country was born in debt, and this debt has become so high that concerned individuals no longer think of it. Throughout the book, he traces the history of the national debt dating back from 1791, when the central bank of the United States was created, up to modern days. The intellectual architect of this creation was Alexander Hamilton, the first Treasury Secretary as well as a central figure who had a deep impact on the economic development of the United States. The title of the book clearly recalls Hamilton's statement that a national debt, "if not excessive,
Although the national debt seems outrageous and out of control, currently standing at over $20 trillion, Alexander Hamilton considered national debt to be a blessing rather than a curse. In the First Report on Public Credit, Hamilton is quoted as saying, “…Persuaded as the Secretary is, that the proper funding of the present debt, will render it a national blessing.” The three-point process that Hamilton implemented catapulted the United States from an agrarian based society to a world power almost immediately. If Alexander Hamilton had not had a worldwide, economic grasp on the United States’ finances, America could never have become the great nation it is today.
The United States borrows money from individuals that have bought Treasury Bills, Notes, Bonds, and United States Savings Bonds. The U.S. government also borrows money by issuing Treasury securities. These securities finance expenditures that exceed its receipts, and are legal under the authority of the Second Liberty Bond Act. The government's primary source of income is through taxes paid by its citizens. Supposedly, money is spent on programs that government officials consider necessary to ensure the best quality of life for all (or at least the majority) of the nation's citizens. The combination of these amounts is what makes up the national
Deficit spending will occur when the government or even a business spends more money that what it makes in revenue (“Governmental Deficit Spending,” n.d.). It seems like this technique would only have to be used every once in a while. However, deficit spending is a fairly common practice by the government and many businesses, but could spell doom if there is failure to plan accordingly when paying off the debt (“Governmental Deficit Spending,” n.d.). For the government, it is used as an instrument to stimulate economic growth while asserting it still has some type of financial stability (“Governmental Deficit Spending,” n.d.). There are great advantages the government can claim as being beneficial for the economy when practicing deficit spending.
The author also explains how “government debt is every politician’s dream” because it helps them buy votes through their expenditure on government programs.
The federal budget is known as the notorious economic tank from which money is distributed to various programs. The money used every fiscal year, which begins October 1st and ends September 30th the next year, belongs to the people. The government raises this money through taxes and they spend it on national defense, Medicare, and social security. The federal budget is an exercise in making choices, and those options will certainly affect individuals living in the U.S. These choices cause debt to pile up on the government, who is struggling to make it disappear. The deficit and debt of a government gauges how well it is being run and how well it has been run in the past. According to The Economist the national debt is the total
The United States national debt is large. The U.S. Debt-to-GDP ratio has grown to over 60 percent in recent years. We are more than $15 trillion in debt. In this paper I will address the federal budget, the United States debt, and the resulting impacts on society in several sectors.
There are a number of both long and short term effects that a large budget deficit/debt can have on an economy. First, there will be increased borrowing, meaning the government will need to borrow from the private sector (Pettinger, 2014). Second, there will be higher debt interests payments, meaning selling bonds will increase the national debt, leaving future generations to have to pay higher taxes (Pettinger, 2014). Third, an increase in aggregate demand will occur, which could potentially cause a higher Real GDP and inflation to
The U.S. government borrows large sums of money in times of national emergency, such as times of war. The U.S. entered many wars that greatly contributed to the national debt. The government also engaged in multiple social programs that increased the debt, such as the bailouts during the housing crisis in 2008-2009. To keep the economy from collapsing, the government borrowed enormous amounts of money. Half way through this housing crisis the deficit exceeded one trillion dollars. The deficit decreased to under $500 billion after the massive spending cuts deal in 2011.
When I first thought of national debt I thought about only the cons and disadvantages of having it. I never gave thought as to what the advantages of having it may be. National debt is the amount of money the federal government owes to lenders outside of itself. "When the Treasury borrows funds, it issues Treasury bonds; these are IOUs of the federal government. In other words, the national debt is a stock of IOUs created by annual deficit flows." (Schiller 261) With the help of research and my economics class, I have learned that having national debt is not always a bad thing. For example, the financial crisis of 2008-2009 and the effects it had on the economy and people was horrible. However, I learned that if it weren 't for the increase in government borrowing by bailing out banks and financial markets, the banks and financial markets could have froze and that would have thrown us into a Great Depression type run on banks. If the government uses its debt the right way, then it will allow the government to do things that it couldn 't really do before. I believe investing that debt instead of spending it would be the wiser choice. The government sometimes spends money so that consumers will have money but they just end up spending it. This is just a way for the government to stimulate spending at that moment. That 's just a short term benefit. Therefore, by investing its debt in things such as medical and technological research and education will create a long term
The encumbrance of debt is the redistributive impact of debt financing. When government obtains funds to finance public expenditures by issuing debt, no compulsion is involved, unlike tax financing. Rather, securities issued by government
Throughout most of the country’s history, the United States’ federal government maintained a reasonable level of national debt. For example, the total national debt in 1981 was $998 billion. Since then, however, the government has generated significant budget deficits, and the level of debt has risen to $16.7 trillion in 2013 (Calleo, 39). Budget deficits are caused
"The government has no source of revenue, except the taxes paid by the producers. To free itself - for a while - from the limits set by reality, the government initiates a credit con game on a scale which the private manipulator could not dream of. It borrows money from you today, which is to be repaid with money it will borrow from you tomorrow, which is to be repaid with money it will borrow from you day after tomorrow, and so on. This is known as 'deficit financing.'" -Ayn Rand
National debt is a problem that can inflict any country including the developed countries. Almost all countries go into budget deficit one way or the other and end up borrowing money. The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interest come due, future taxpayers will face a difficult choice. Inheriting such a large debt cannot help but lower the living standard of future generations. In the 1960s and 1970 some developing countries were encouraged to borrow money to service old debts and also to finance development projects in their country like infrastructure. This has been necessitated by the