What are the most important questions Americans need to ask regarding the national debt? The national debt continues growing, with deficits rising sharply this year. As such, it becomes important to understand the how and why behind the debt. Today, we’re taking a closer look at some of the burning questions that you should be asking your representatives when it comes to how this debt is handled and what it means for the future.

What Is the Current Size of the National Debt?

The national debt itself is something that continues to grow, especially as current economic policies are being enacted under the current administration. As such, it becomes vital to understand the sheer size of the national debt and how it relates to the American economy.

Understanding the Scope of It

At the time of this writing, the national debt sits at around $36 trillion. This is a sharp incline over the last five years, with national debt growth rising sharply even since the Great Recession.

Who Holds the National Debt?

This debt is held somewhere, just like when you borrow from a bank. Unlike an individual, however, the holders of these debts influence economic policy and growth for the foreseeable future.

Potential Risks

If any of the lenders that possess American debt decided to default upon it, that affects everything. In short, we’d be looking at an economic crisis on a global scale. This is thanks in part to the purchasing power and sheer impact of the American economy.

What Are Treasury Securities?

Treasury securities are a way to finance American debt, differing mostly in duration when compared to bills and bonds. Securities are short-term and backed in faith by the American government.

The Mechanisms of Borrowing on a Governmental Scale

On paper, investing in securities in the short term might seem like a great idea. However, they run the risk of losing value sharply in the event of inflation or rising interest rates. This can make your investment result in losses.

How Does the National Debt Affect Interest Rates?

The national debt itself might seem fairly disconnected to the layperson when it comes time to purchase most goods. However, you’ll feel the squeeze when looking at longer-term purchases.

Unseen Costs

One of the unfortunate side effects of an increased national debt can result in higher interest rates across the board. The burden of debt can have steep impacts on how the American populace take advantage of economic opportunities like purchasing a house or car.

Can the National Debt Lead to Inflation?

There are many factors at play when it comes to inflation. However, the way the national debt functions directly impacts the economy and the value of the American dollar.

Excessive Debt and Economic Pressure

Higher national debt ultimately results in an upward pressure toward inflation. This is felt in both the long and the short term, resulting in a decrease of purchasing power for the average household.

How Does It Impact Economic Growth?

The national debt itself influences how both domestic and international investments are conducted in the United States. These are instrumental for a growing and healthy national and global economy.

Reduced Investment and Expansion

Would you loan money to someone who is having trouble paying the bills? Altruism aside, that’s a bad investment for the lender. The same holds for international and domestic opportunities for investment. Flagging value in the US dollar and higher interest rates make for an unappealing combination for business expansion or investment.

Can Foreign Powers Lose Interest in the US Dollar?

Can a rising national debt make foreign powers stop trading with the American dollar? Since the elimination of the gold standard, fiat currency has been the norm for many countries. However, the value and purchasing power of a currency is only worth what investors are willing to pay.

Economic Instability

A lack of stability and value in the US dollar can lead to economic uncertainty and instability in the long term. Since foreign powers might lose interest in the US dollar, that directly impacts how we’re paying for commodities and imports overseas.

Is the Current Trajectory Sustainable?

Ignoring the current carousel of news headlines regarding the economy, is this current pattern of rising national debt tenable? Right now, the national debt is rising at a rate that far outstrips the GDP of the country.

A Need for Policy Changes

To make things more stable over the next thirty years, some changes will need to occur. These are changes that will need to be done at a policy level, rather than something that will be swayed by American companies flexing their economic might.

What Drives the Increase of Debt?

There are a few factors at play in how the national debt increases. Some of these are things that haven’t been curtailed since the COVID-19 pandemic, and the consequences of those factors are coming home to roost today.

Factors in Play

There are three primary factors in how we look at the national debt in its current state. A steep rise in healthcare costs, rapid escalation of interest costs, and an aging population are heavily influencing the national debt.

How Can the Government Exercise Fiscal Responsibility?

A government is a lot like a person when it comes to spending habits. Past a point, you’re no longer solvent regarding lines of credit, debt, and so forth. As such, it becomes paramount for the government to exercise some form of fiscal responsibility.

Planning for the Future

There are a few different ways the government can better plan for the future and exercise some fiscal responsibility. Curtailing spending and raising taxes would be a quick way of massively reducing the debt. Additionally, purchasing bonds can give some breathing room to a flagging economy.

 

 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.