After rapid growth in the international debt of developing countries in the 1970s – and the increasing incidence of scheduling back debt in the early 1980s, the risk of countries reflecting the ability and willingness of a country to financial services has been a topic of concern for the international world (Cosset and Roy, 1991).
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.
2. The government asks for loans from international banks on credit of the U.S. and the debt must be paid
This problem can be explained more on the basis of the “Iceberg Theory”, according to which we only see a part of something on the surface but the reality remains that much more exists beneath the surface which we are oblivious of. This menace of loan debt has a similar nature in terms of our understanding and awareness of its enormity; that its diagnosis was much delayed than its conception.
The large amount of debt could also compromise national security by constraining defense spending in times of international crisis or by limiting the country’s ability to prepare for such a crisis.
As a nation, America has accumulated a tremendous amount of debt which will affect not only the lives of the current citizens, but generations thereafter. Currently, the United States public debt is approximately $9.5 trillion, in long form, that’s $9,500,000,000,000. This ridiculous amount of money is a historical accumulation of misappropriated surpluses and exacerbated deficits. It is important for American citizens to not only understand the national debt concept, but also understand the causes and effects that lead to this
The interest payment burden is the real risk that the government faces with increased federal debt.Economists have said that if interest payments hit 12% of GDP there are high chances of the U.S government defaulting its debt.For instance, it is evident that the United States is not currently paying its outstanding debts. New treasuries are being issued to refinance the existing treasuries. For instance, in a case where $100 billion treasuries are matured, the treasure borrows $100 billion additional from revenues through $100 billion new treasuries issuance rather than paying back the initial $100 billion from government revenues. It is more likely that interest rates will vary when new treasuries are issued from those of existing treasuries.
In America today, the total consumer debt was $11.52 trillion, and of that, student loans account for $1.08 trillion and that number is growing larger and larger every year (Hiltonsmith, Robert). A large portion of the population undoubtedly feels the burden of these statistics. Seven out of every ten college seniors has reported having to take out one or multiple student loans so that they can to afford to go to college (Hiltonsmith, Robert). The results of this outstanding amount of debt does not just affect the United States negatively for the obvious reasons such as lower credit scores and perpetual expenditures towards lenders. This loan and debt crisis has also led to an even larger disparity between the lower class and the upper
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
It should be noted, prior to the crisis, there was already an increasing concern of economists and critics about the credit quality that was provided by the financial sector at the time when there was low interest rates that were applied by the government. There were also issues about the inappropriateness or ineffectiveness of the standards that were used in extending credit by the financial sector (Calvo, 171).
Qureshi & Ali (2010) analyzed the impact of high public debt burden on the economy of Pakistan. The sample of the study was 1981 to 2008. From their study a vast negative impact of public debt on the economy of Pakistan had been found by the authors.
At such high levels, government borrowing crowds out private-sector credit, keeps interest rates high, adds to already high government debt, and becomes a key source of macro vulnerability.