USA: The Largest in Terms of National Debt

The US began to incur debt before it gained independence where the colonial leaders borrowed money from France and the Netherlands to win their independence from Great Britain. Continental Congress, the predecessor of the US Congress to tax citizens which contributed to the growth of the debt. By 1790, it had topped $75 million, with a 30 percent debt-to-GDP ratio, according to an accounting presented that year by Alexander Hamilton, the first secretary of the U.S. Treasury.The economy grew and its debt decreased but during war 1812, the debt grew again. Andrew Jackson took over the office in1828, sold federal land paid all the debt of $58 million. However, a recession followed and the US had no option other than borrowing. During World War 2, US debt rose above 77 and in the post-war years shrank to 24 per cent of GDP. In the 1990s, debt measures were put in place such as tax increase which helped reduce debt(History.com Editors, 2018). Currently, US national debt has been increasing over the year since 2013, in 2017 was $20 trillion and it is expected to hit $33 million by the year 2028 if the trend continues.

Comparing the US with other industrialized countries takes the largest share in terms of the national debt. For example in 2017, Japan had a national debt of ($9.087 trillion USD), Italy had a national debt of ($2.48 trillion US), Spain had a national debt of ($1.24 USD), Singapore had a national debt of ($254 billion US) and the United States of America recorded the highest national debt of $19.23 trillion USD (Stashinvest, 2017).

During the reign of President G.W. Bush and Barak Obama, they are blamed for increases in the national debt. In particular, during the reign of G.W. Bush, the national debt, he had a budget deficit of $3.29 trillion which was funded through borrowing hence increasing the national debt.The 9/11 terrorist attacks dramatically reshaped the U.S. economy where military spending surged to $600 billion/year and Afghanistan and Iraq wars were primary cost. He undertook a cut in tax which reduced the government revenue and also there was recession both summed together increased national debt. During the reign of Obama, military spending increased to $800 billion per year to fund two inherited wars and deficits summed to $6.785 trillion.Entitlement programs like Medicare and Social Security became more expensive with the ageing population and these too increased spending. Tax cuts and the great recession of 2008 also played a significant role in the increasing the national debt and during his period, the national debt increased by $8.335 trillion (Daniel, 2019).

Higher national debts have four main consequences which include; the lower national savings and income, results to higher interest payments, leading to large tax hikes and spending cuts, results to decreased ability to respond to problems and also they pose a greater risk of a fiscal crisis(Alesina&Passalacqua, 2016). These consequences have been observed in the US where; large sustained federal deficits cause decreased investment and higher interest rates. With the government borrowing more, a higher percentage of the savings available for investment would go towards government securities. Second,as interest rates return to more typical levels from historically low levels and the debt continues to grow, federal interest payments increase rapidly. As interest takes up more of the budget, we will have less available to spend on programs. Lastly, government borrow to address unexpected event such as war, financial and this is easy to do when debt is small but with the growing national debt there is a fear that the government may not be able to respond quickly to such problems when they occur.

Yes, the high national debt that is increasing is likely to hamper economic growth. This is because the country may end up committing a larger share of its to service the loans and a lower amount of money in the investment programs which will see economy lack key drivers for its growth. Also, as the debt-to-GDP ratio increases, debt holders could demand larger interest payments. They want compensation for an increased risk they won't be repaid. Diminished demand for U.S. Treasurys would further increase interest rates. That would slow the economy (Kimberley, 2019).

The US is not likely to default on its debt in future because, even if the national debt is increasing, the economy of the country to is increasing though at a lower rate than the rate at which the debt is increasing. Another reason why it may not default is that they have control mechanism such debt ceilings which are raised and the Treasury has put in place to ensure that the country has the debt that is sustainable (Kimberley, 2019). Lastly, US cannot default its debt because every single bit of the debt is owed in the currency that the US can only issue: dollars and therefore it can print money and pay (John, 2012).

According to Paul Krugman, he asserts that there is no need for alarm because the government is borrowing for the good of the nation. He says that responsible government are stable and have been having to live with much higher levels of debt than we could imagine today. He points out Britain and says,” has had debt exceeding 100 percent of GDP for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan,”. In his conclusion, he says debt matters because we need more, not less government spending to get us out of the unemployment trap.

References

• Stashinvest.(2017).Top 10 Countries with the Largest National Debt-to-GDP in 2018.Retrieved 27, April 2019 from https://learn.stashinvest.com/10-countries-with-largest-national-debt-to-gdp
• Daniel, W.(2019). The $22 Trillion U.S. Debt: Which President Contributed the Most. Retrieved 27, April, 27 from https://www.debtconsolidation.com/us-debt-presidents/
• Alesina, A., &Passalacqua, A. (2016).The political economy of government debt.In Handbook of Macroeconomics (Vol. 2, pp. 2599-2651).Elsevier.
• Kimberley, A.(2019).The US Debt and How It Got So Big. Retrieved 27, April 2019 from https://www.thebalance.com/the-u-s-debt-and-how-it-got-so-big-3305778
• Kimberley, A.(2019). US Debt Default Causes and Consequences. Retrieved 27, April 2019 from https://www.thebalance.com/u-s-debt-default-3306295
• John T, H. (2012). It Is Impossible For The US To Default. Retrieved 27, April 2019 from https://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/#3927a9231180
• Mark, T. 2012). Paul Krugman: Nobody Understands Debt. Retrieved 27, April 2019 from https://economistsview.typepad.com/economistsview/2012/01/paul-krugman-nobody-understands-debt.html
• History.com Editors. (2018). National Debt. Retrieved 27, April 2019 from https://www.history.com/topics/us-government/national-debt