Controversy on the US national debt

Topics: United States public debt, Government debt, Tax Pages: 8 (3104 words) Published: March 12, 2014
Cristian Cobb
Marcia Stofel
Advance Placement English Language and Compression
3 February 2014
The controversy of the US national debt
The recent clash between the president and congress about raising the debt ceiling made the front page on every newspaper throughout the country and generated controversy of unimaginable proportion among the citizens of the United States of America (College for Financial Planning). No macroeconomics issue is more controversial today than the impact of large public debt on the economy and on future generations, but, however, there appears to be a huge disconnect between professional, political leaders, and the ordinary public about the national debt and its impact on the current and future generations which to come (College for Financial Planning). That there is an impending bankruptcy of the United States because of the growing national debt has turned out to be a false prophecy (College for Financial Planning). Despite this debt, the United States has the strongest economy in the world and is militarily the strongest nation on earth (College for Financial Planning). There is guidance on how to separate U.S. national debt facts from fiction, and this is when the controversy comes in play (College for Financial Planning). After months of bitter negotiations and a partisan impasse, The Budget Control Act of 2011 bill was passed and signed into law on August 2, 2011, that allowed the United States of America Treasury to recommence borrowing and meet its obligations (College for Financial Planning). Political leaders continue to point to the national debt with alarm and yet do nothing to reduce it (College for Financial Planning). When the federal government runs deficits, it is financed by the sale of Treasury securities, thereby adding to the national debt (College for Financial Planning). The United States of America, for example, never did raise the taxes needed to pay for the expenses of World War II and it probably never will (College for Financial Planning). Rather, the old debt just keeps being refinanced with the issuance of new Treasury securities to replace the old securities as they come due (College for Financial Planning). When a government spends more than the revenue collected from tax, tariff, and other fee revenues, it must borrow to cover the deficit it faces which when accumulated over the years becomes the national debt. Internal and external debts are the two types of national debt. Internal debt includes the amount borrowed from sources within the country. The government raises this money by selling securities, government bonds, and bills. While External debt is the money borrowed from foreign sources. These sources may include private sources, other countries, and the International Monetary fund. This paper will explore the reasons and consequences of the high national debt faced by the United States of America. Furthermore it will also discuss ways the reason for this excessive spending can be eliminated or reduced. Economists forecast that by 2030 the current account deficit would surge up to $5 trillion on annual basis which would constitute up to 15% of the country’s GD (The Budget and Economic). This entire deficit will cumulatively contribute in further inflating the level of foreign debt that would burden the economy which would imply greater imposition of back-breaking taxes on the people of the country. Over the past few years, United States of America government debt held by the public has grown so much that when compared with the total output of the economy, it is now higher than it has ever been in the economic history of United States of America (The Budget and Economic). The federal government debt in America has exceeded up to over $10 trillion excluding the security given to government sponsored entities (The Budget and Economic). About 64% of the debt is held by the public and the rest is intra-governmental holdings (College for Financial...
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