National Debt

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National Debt:
It is Not Just a Number, It is Our Future

Miranda Rosenbaum
Macroeconomics
Professor C. Simkonis
April 29, 2008

Rosenbaum 1

As a nation, America has accumulated a tremendous amount of debt which will affect not only the lives of the current citizens, but generations thereafter. Currently, the United States public debt is approximately $9.5 trillion, in long form, that’s $9,500,000,000,000. This ridiculous amount of money is a historical accumulation of misappropriated surpluses and exacerbated deficits. It is important for American citizens to not only understand the national debt concept, but also understand the causes and effects that lead to this point and what action we as Americans must prepare to do in order to significantly reduce this outrageous mistake.

In order to understand the concept of national debt, it is important to know exactly where the money is derived. The funds owed by the United States federal government are either private (external) or public funds. If the funds are private, they are owed to foreigners in the form of securities such as Treasury Bills, Notes, Bonds, TIPS, Savings Bonds, and the State and Local Government Series securities. If the funds are owed by the public that means that large American corporations have purchased these securities and therefore America owes these corporations that amount plus interest.

In addition to securities and bonds, the US federal government receives income through taxes. The Internal Revenue Service manages the financial portion the government receives from citizens and helps determine the surplus/deficit budget. These funds are used to improve homeland security, Medicare/Medicaid, Welfare programs, and Unemployment issues among other

Rosenbaum 2
government programs. When the expenses of the US Government exceed the revenue collected, it issues new debt to cover the deficit. This debt normally takes the form of new issues of government bonds which are sold on the open market. Another option is to allow the Federal Reserve to monetize money which ultimately dilutes the value of dollars already in circulation, resulting in a weak dollar and inflation. However, during the 1980’s President Ronald Reagan drastically reduced taxes and therefore severely increased the national debt because less money was available to these programs. Then, President George W. Bush was elected and demanded a tax relief to many Americans. This would have helped stimulate the economy if more than half the funds were not given to the upper class which has the tendency to not spend but save according to the marginal propensity to consume/save. If the funds were given only to the citizens of the lower rungs of the socioeconomic scale, they would have spent more money, saved less, and stimulated the economy.

As a result of reduced taxes and a misappropriated tax stimulus, our United States government was forced to increase the national debt by borrowing more money from foreigners. This resulted in the highest debt in the history of the United States and a very hefty IOU. Also, the economy can not afford a reduction in assistance of government programs, so this is clearly not an option at this point. Therefore, the only option is to continue to borrow, even if we do not have the financial power to repay our debtors.

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Consequently, political jargon and miscommunication has caused the common American to not realize the severe impact of national debt on our everyday lives. The national debt has caused a ripple effect to blast through our economy with absolutely no end in sight. To begin, as the government increases its borrowing, it also decreases its ability to loan money to large corporations due to a rising interest rate. This has caused our economy to turn from a manufacturing economy to a service economy. Many believe this is an...
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