Problem Related to The National Debt

National debt is caused by a government not having enough income through taxes to match its expenditure. This debt is the National Debt. National Debt, results from a government’s expenditures exceeding that government’s tax revenues. What fundamentally causes it though is political unwillingness to raise taxes or cut spending as either move would be politically unpopular.

In Tanzania by the late 1980s was suffering from heavy burden of foreign debt. Tanzania’s external debt, which at the end of 1986 was equal to 3.9 billions US dollars and by 1992 had increased past 6 billion. This came about due to imprudent borrowing in the 70s, poor economic policies, inaccurate assumptions about economic growth, collapsing commodity prices, a series of droughts and severe economic recession. This meant that they country had little ways in which they could pay back these debts due to them being economically unstable. This creates many problems for the country such as.

Some problems which occur as a result to National Debt are the diminished ability to respond to problems, as Governments frequently borrow money in order to address unforeseen occasions, such as wars, budgetary emergencies, and catastrophic events. This is moderately simple to do when the demand is little. In any case, with a vast and developing debt, the government has fewer choices accessible. For instance, amid the money related emergency quite a while back, when the debt was only 40 percent of GDP, the legislature could react by expanding spending and slicing charges so as to animate the economy. Be that as it may, subsequently, the debt increased to almost double its share of GDP. If the debt were to remain at its present level of GDP or expanded further, the government would think that it is progressively hard to embrace comparable arrangements of the same level later on, therefore creating mistrust towards the country. Therefore, future recessions and money related emergencies could have bigger adverse impacts on the economy and on individuals' prosperity. In addition, the decreased financial adaptability and expanded reliance on foreign investors that go with high and rising debt could debilitate U.S. government in the global field. Given the potentially catastrophic impacts that could be rough by other disasters in the future, it would be critical to keep up US’s capacity to react rapidly. But as debt continues to increase, reacting to these sorts of things in the future will become more difficult.

In 2009, Greece's spending shortage surpassed 15 percent of its total national output. The collapse of Greece’s bond market would worsen Greece's capacity to fund further payments of debt. The EU and the International Monetary Fund provided 240 billion euros in emergency funds in return for a reduction government budget deficits through spending cuts, tax increases, or a combination of both. The loans only gave Greece enough money to pay interest on its existing debt and keep banks capitalized. The EU had no choice but to stand behind its member by funding a bailout. Otherwise, it would face the consequences of Greece either leaving the Eurozone or defaulting.

To a huge degree, the reason for the circumstance was a political response by the Greek public who, after having persevered through the impacts of a horrifyingly ruthless seven-year long military campaign, chose a left-inclining, socially liberal government. This new political routine, in addition to other things, brought about an extensive increment in government spending. This in turn ended up stifling the private sector and then came a huge expansion of the public sector as a percentage of total GDP. Government spending and borrowing soared, leading to sixteen years of deficit. This period, unfortunately, gave rise to serious underlying structural economic problems including a swollen public sector and an increased power of labour unions. Unemployment grew, and inflation plagued the economy. In 2009, after more statistical irregularities that had resulted in an underreporting of public debt were laid bare, Greek debt was decreased. Suddenly, Greece was shut out from borrowing in the financial markets. By the spring of 2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis and the existence of the Eurozone itself.

Overall, the problem is these governments are too focused on getting the money easily without any strings attached, worrying about the present rather than the future, and because of this they end up with large numbers of debts going into the billions with no other countries wanting to give them loans in the future for fear that the country won’t be able to pay it off due to their own poor reputation.