So explain to me the national deficit and what's the consequences because of it?

Question

I've read we're 8 trillion dollars in debt...that's a lot of money, yet it seems our economy is oblivious to it...like student loans over 23,000 dollars. I was curious what's to become of this, and with such debt, would we have to ....oh start over from scratch as if the debt never existed? Or we can't and the next generation will have to answer for it? I don't know much about the situation, so i'm interested in knowing what's up.

ALSO on my search i found this page....so i'm curious if that's a legit solution for the deficit: http://www.federalbudget.com/amendment.htm

Answer 1

Sorry to be boring but the National Debt actually isn't much of a problem. 8 trillion may sound like a large number but you must always consider that the US economy is huge and growing, so all numbers relating to it are on a large scale. Other large numbers are $13.5 trillion, the US GDP; and $2.5 trillion, how much tax revenue the fed government takes in. Needless to say no other country on earth has such large numbers for any of these variables, except that Japan has greater debt(!)

Further, the size of the debt relative to the size of the economy (debt:GDP ratio) is shrinking. Even running deficits, this ratio can shrink as the growing economy (and hence tax base) and mild inflation combine to reduce the effect of the existing debt. Today it's an 8 trillion debt in a 13.5 trillion economy. Say the debt grew only very slowly. Perhaps in 2030 it will be a $10 trillion debt in a $50 trillion economy. Much more manageable -- the debt will never be paid off, but it may very well shrink, relatively speaking, to insignificance.

And a key point: the debt does not ever have to be paid off, and it almost certainly never will be. In fact it would be stupid to pay it off, as that would require enormously overtaxing the population and crippling the economy, for no good reason. We're not only leaving our children debt -- we're leaving them enormously far more assets, plus they inherit all the nice productive infrastructure that was built with the debt. (The US honors the existing debts by redeeming treasury bonds that come due, but often that cash comes from selling new bonds. It's a rollover.)

It is clear that the gov't debt is NOT currently causing any serious problems -- the economy is strong, interest rates are low, the US federal government has the most secure credit rating on earth, and the annual deficit at 1.9% GDP is relatively small and falling rapidly.

Relative to the sizes of their economies, many other countries, including France, Germany, and Japan, run higher deficits. Japan's deficits are particularly outrageous, and its much smaller economy actually has an enormous nat'l debt that is larger in dollars than the US's and much much worse in debt:GDP ratio.

Answer 2

The most obvious effect the national deficit has is the following:
It impacts the nature of international investments into the US governmental financial markets.

To oversimplify, the tendency of other countries to purchase US Treasury bonds and such is dictated by their perception of our "solvency". This is a major source of income for our goverment that never gets discussed. We only think in terms of US taxpayers putting money into our governmental operations.

Example:
After all, if you are going to purchase stock in a company, you want to be sure they can manage their debts. If you don't get a "warm & fuzzy" (economic phrase, right?) from the company, you tend toward short-term investments that are more assured of payout upon expiration. And if you opt to take the risk for a longer term investment, they have to increase the return to make it worth your while. If they have debt issues, this number is a little higher than they would otherwise prefer to offer.

In the above example, the "they/company" is our government.

Len

Answer 3

There seems to be no one that can actually tell anyone else what the debt will cause ad why. This debate has been going on since the civil war. Yes it can cause problems and has in the past. Just how bad the problems in the future will be is any ones guess.

Keep reading but do not believe any of what you read as stated. It takes many sorces to even begin to understand what might be.

Answer 4

If I am you, I will also be worried. It means that my unborn child and grandchild are presently indebted.