U.S. National Debt United States

U.S. National Debt

United States National Debt

national debt represents the amount of money the government owes to its creditors and it is currently maintaining its ascendant trend. On the 12th of October 2007, it was estimated at a total value of $9.030 trillion, out of which $5.038 trillion was held by the public and $3.992 trillion was represented by intergovernmental debt holdings. The opinions in regard to the large amount of the debt vary, some arguing that the debt is beneficial, others stating the contrary. Whichever strategy the U.S. Government will apply towards the regularization of the national debt, it will have implications on the U.S. economy and on the following generations.

Economic Effects

The effects that an increased national debt has upon the U.S. economy are revealed by a basic consequence of the increased demand for credits, which will eventually generate a chain reaction affecting all features of the economic life. As such, the increased national debt is based on an increased demand for credits. But this increased demand for credits determines creditors and other financial institutions to increase the adherent costs of credits. Therefore, credits will be offered at an increased interest rate and creditors will impose more restrictive criteria, such as larger commissions and more valuable collaterals.

The restrictions imposed on credits, combined with the increased costs of purchasing the credit will generate fewer investment opportunities and fewer development resources. Companies will have to be restructured; they will be obliged to downsize their employees and increase the prices of their products and services in order to avoid bankruptcy. This will generate a general price increase and also an increased unemployment rate. Also, a national debt that is increasing at a superior rate as compared to the economic development rate is likely to generate dollar devaluation in comparison to other international currencies, such as the EUR, GBP or the YEN.

As such, the major impacts a continuing ascendant national debt will have upon the economy reveal a growing demand for credits and the increasing costs of credits, the general price increase, a growing unemployment rate and the devaluation of the national currency.

2) Effects on the following generations

However it has been stated on numerous occasions that a national debt is beneficial to the country's economic growth, an uncontrolled debt is a threat to the country's economic and political stability. The following generations should be concerned in regard to the colossal size of the accumulated debt for two main reasons:

the national debt will have to be managed and probably paid by them; the national debt will cause economic instability.

Currently, the ascendant trend of the national debt is becoming more obvious in the economic area. The effects of the increased governmental debt are starting to be felt throughout the hardness of obtaining credits (situation emphasized more by the August real estate crisis) and through the U.S. dollar devaluation in report to the European Union currency, the EURO. However these effects have limited implications in the real life, their magnitude will increase exponentially during the next years, provided, of course, that the same trend is preserved in the detriment of reducing the debt. In such case, the now young generation will be faced with the disastrous outcomes of an uncontrolled federal debt.

Besides the negative impacts a large debt would have upon the economic and political backgrounds, the future generations ought to be concerned about the means of repaying the country's debts. As such, the next generations have two reasons for concern: facing the economic and political instability and ensuring sufficient profits to pay off the federal debt.

3) Debate on the federal debt

The debt debate revolves around the arguments in favor and against such an increased level of the government debt. The opinions vary based on the speakers' education, personal beliefs, priorities and interests.