Economic impacts of rising U.S. national debt on future generations

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.

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.

For instance, those who prioritize national security and economic growth will agree with the colossal level of the national debts. They will state that the debt is necessary in order to insure a continuous flow of financial resources, vital for the development of new economic projects and consequently economic growth. Furthermore, the advocates of national security (such as the Bush administration) will point out that the population should not be concerned with the debt, as long as they feel safe within their country. In other words, national security comes first and, under no circumstances, should it be seconded by the intent to balance and pay the federal debt.

On the other hand, the advocates of political stability and sustainable economic growth, even if at a lower rate, emphasize on the importance of a balanced expense budget. Some state that the U.S. government should establish a maximum limit of expenses, which should not be overran. Otherwise said, the expense budget should be capped.

All in all, I believe that the level of the governmental debts is being disputed by the people who have opposite interests, or at least who wish to realize their similar goals in opposite manners.