What would happen to the world economy if the United States paid off the national debt?

Answer 1

OK, first of all let me set things clear.
Deficit occurs when a government spends more money than it takes in. An accumulated deficit over several years is referred to as the government debt. By debt i talk about money owed by any level of government.

As of Jun 2006, the US National Debt was about $8,337,290,510,783.04. That's a lot of money. The impact of paying off the entire debt would vary depending on the way you choose to repay it:
1. Short Way: the government could just say: let's print the money owned and give it to our debtors. - the inflation, interest rates, and exchange rates would kill the US economy as well as the rest of the world. That's not a good idea.
2. Mid-Term: (session at the congress -guys guys please order! we have to get rational on our nations spending way. The budget has to be sustainable reduced every year for the next 20 years so we can pay off the debt. There have been some mistakes in our past, but i believe as a nation we grow and learn from them. Let us review our budget and start giving our children a better future- sound ovations for whoever speaks like that)
3. Long Road: over generations (and different governments) taxes are increased by small bits and expenses are cut, reducing the debts rate of growth.

Ultimately, deficits are a powerful mechanism to finance growth as Keynes argued, there is no wrong in incurring in debt if you are trying to balance the economy. High amounts of debt should not be taken lightly.
Debt should concern us all since it seems to be of the common fear that "something might burst some day". Contrary to what Herb Stain claimed "If something can't go on forever, it won't" debt should not be left alone to be fixed by "the invisible hand".

Allow us, and our leaders, to avoid financial irresponsibility. A moderate debt is healthy for an economy, not to high, not to low.

Answer 2

I do not believe that the impact would be that great. In a matter of fact I believe it would be minimal.

My first argument is that in the past many countries have repaid their debt and nothing happened. Recently Russia reapaid all its national debt, which was very big, and nothing happened. Actualy it went tottaly unnoticed.

Secondly most of the countries and the US borrow the largest ammounts from the World Bank. The World Bank has a system to keep the ammount of money in the World economy more or less stable. So even if the US repaid this enormous debt the World Bank would not allow an oversupply of money in the market and hence an istability in the exchange markets.

The largest part of the US debt is in dollars. That means that the US has to pay dollars for its debt and no other currency. This offer of dollars can cause further reduction of the value of the dollar. This is something that the US does not realy want and many countries do not want it because they keep their foreing currency reserves mostly in USD. In other words the value of the dollar would remain more or less the same. In the past the dollar was very stable because when its value was going down many countries started buying dollars to benefit from a future increase of tis value and to safeguard their reserves. Furthermore nowadays there is more than one international currencies. The euro is very strong and stable for the time beeing and many countries have started using it for their reserves and as their official currency for foreing trade. So, a weak dollar could easilly be changed to another currency such as euro.

One argument of the other side could be that the US by paying off its debt it would reduce the global consumption and hence it would slow down the economic growth or send the global economy to recesion. I do not believe that this is the case. US is the largest consumer right now and its economy is based to cosumption but China and India are two markets that are growing very fast and in a few years they can absorbe any reduction of the US consumption.

If US wants to repay its debt, it has to have a budget with a surplus and most important a surplus to its trade balance. If this happens the debt will sift from the US to other coutries that they will have deficits to their trade balances because they will be buying many thing from the US. They will have to buy dollars so the dempand and the supply of dollars will be more or less the same as today. The USD will probably increase its value but not that much since its main competitors (EU and China) will have weaker currencies than the US. A very storng USD will harm the competitiveness of the US economy especialy when China is keeping its currency that low.

In brief I believe that the impact will be small. Maybe we would experience a change of the importance of some markets and maybe some countries would face some problems with their reserves but only for the short-term. But if we want to be realistic US economy is based on consumption (as most of the modern markets) and it is extremely difficult to save money and repay its debt. Can you imagine the US citizens accepting to give up their huge cars, the large meals in the restaurants, the luxuries they have now and the safety that this debt is providing for them? I do not think so. Americans have learned to live in the fast lane and they will continue to do so (and to tell you the trueth good for them).

Answer 3

Period of hardship for USA citizens; and inflation for the countries that hold the debt.

What would happen if you typically held $10,000.00 debt and then paid it off at once? Well, you'd have nothing left over to consume. Most likely, you'd be on the streets without a car, phone, running water, soap, etc. The USA govt. would also experience such a unpleasant experience.... no more environmental programs, schools, 911 emergency assistance, road repair. I wouldn't want to live like that.

Answer 4

keep in suggestions, the debt is in the nature of bonds and T-costs, a number of them with 20 to 30 three hundred and sixty 5 days existence. at the same time as they develop into due, the authorities can launch new subject matters of such units. when you consider that most of the international's overseas money is pegged to the U. S. dollar, that's in the great activity of the international locations to help the U. S. economic gadget.

Answer 5

The Bank central of China are financing the american debt. So, if they pay the debt, the Chinese gonna have a lot of money to finance development, like technologies or education. So, maybe the chinese people gonna have more possibilities to be competitive with rich country (I know, they are competitive, but not a the quality of live nivel). And with education and development, they gonna have possibility to develop new technologies (for conspiracy theorician, you have a lot of space to play here) to increase the development. It's a kind of vicious circle. Development, technologies, development... etc. For the rest of the world, let me guess somethings. The american government gonna have more money to spend for a social security system, increasing the nivel of the quality life, or to decrease the tax nivel and encourage cies, now in others countries, to came back in USA and create jobs. Here it's my theory and, honestly, when I read that, I'm not gonna bet on it.

Answer 6

Actually it wouldn't be as good as some would think. Foriegn countries buy into our national debt through the purchase of treasury bonds. Those are very secure investments.

Answer 7

this will never happen the debt continues to grow any attempt to pay it off would force americans into an inflationary period debt insures that people are willing to work for lower wages in steady jobs not rocking the boat.