The Consequences of National Debt

May 26, 2011
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The growth and size of the National Debt is a severe problem for the U.S. economy, and for American society as a whole. The great magnitude of America’s debt is unsustainable. America’s “addiction” to debt has resulted in a vicious cycle, with the government sinking into further debt in order to service the debt. The National Debt is growing at an increasing rate, and is no longer manageable. The National Debt has grave political ramifications. It also results in short and long term economic problems.

The growing National Debt causes severe short and long term problems for the economy of the United States. Crowding out will result from the increased debt. The government will need to borrow more money, and this increased government borrowing pressure will increase interest rates. This is harmful for our nation’s economy. Higher interest rates will lead to a decline in trade. The United States has the largest trade deficit in the world, which indicates that we are heading in the wrong direction. This trade deficit leads to a decrease in the Gross Domestic Product of our nation’s economy. The enormous amount of debt our nation owes is unsustainable. Every dollar that is spent on paying back interest on the debt is money that cannot be used to fund important government programs, such as Social Security.

The great size of the National Debt has political ramifications. With such a large debt, if the United States were to ever need a bailout, it would have limited sources to turn to. With a continually increasing deficit, the United States has become increasingly reliant on foreigners to finance the debt. If the United States is indebted to other countries, the other countries could exhibit negotiating power over us. We could potentially be exploited by the countries that we owe money to. Our government has promised more than it can deliver, which results in budgetary issues. In recent years, Social Security surpluses have been used to pay off debt. This results in less money being available for Social Security recipients. This will become a severe problem as more Baby Boomers reach retirement age, as Social Security funds will run dry. This potential lack of Social Security funds in the near future will cause major financial problems for Americans who have been planning their finances with the expectation that they will receive Social Security benefits when they become of age. The massive debt will eventually need to be paid off. The large deficits that our economy is currently operating at will only result in higher taxes and less government programs for our nation’s future. Our nation cannot prosper to its full productive and innovative capability if we are continually struggling to finance our debt.

Some economists believe that the National Debt can be manageable, and even beneficial. Some argue that borrowing results in us acquiring things that are beneficial to our nation. However, this “good stuff” acquired from borrowing only leads to a vicious cycle. It becomes necessary to sink deeper into debt in order to pay off debt. It is also argued that instead of focusing on debt, economists should focus on the National Debt to Gross Domestic Product ratio in order to compare what the nation owes to what the nation has. The ideal ratio is less than fifty percent. However, the United States economy is currently operating at a ratio that is over ninety percent. This indicates that the National Debt may not be manageable and may be unsustainable.
The National Debt is in no way manageable or beneficial. It has become a vicious cycle of debt. The great magnitude of the debt results in economic problems such as crowding out and a trade deficit. The growing National Debt also causes political problems. Such a large debt changes our relationship with other countries, as a lack of trust in our financial security may lead to limited resources willing and available to help us if we ever need to be bailed out. An increasing reliance on foreign investors could also weaken our political strength. The depletion of Social Security funds that have been used to finance the massive National Debt will cause major economic problems as Baby Boomers reach retirement age. The National Debt is a severe problem for economy that needs to be dealt with in order to build a more promising future.

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