how does a country as rich as america have so much debt?

Question

america must be the richest country in the world why borrow money from third world countrys like China?

Answer 1

It's called leverage. Borrowing is an excellent way to create more wealth - real estate investors do it all the time. The size of the debt doesn't tell the full story. The size and efficiency of the US economy allows the US Gov to handle the debt without the problems it would present to most other countries.

Let me put it into perspective. Let's say two people have $10,000 in credit card debt. One person makes $30,000 per year on his job, and the other makes $1 million. Wouldn't you agree that the guy making $1 million per year on his job will do just fine in handling the debt. Think of the US as this guy.

Regarding your comment of why would the US borrow money from 3rd world countries like China, your line of reasoning is wrong. You make it sound as if the US goes to individual countries with its hand out asking to borrow money. Doesn't work this way. Rather the US issues bonds (ever heard of Treasury bonds?), which investors, like China, buy for an expected rate of return.

Do your research before you ask a loaded question like you did!

Answer 2

According to the Treasury Department, major foreign holdings of U.S. Treasury securities total $1.38 trillion. Over the first seven months of 2003, Mainland China and Hong Kong have accumulated $177 billion of U.S. debt. Currently, China is the world’s secondlargest buyer, exceeded only by Japan. Furthermore, China’s purchases of U.S. government securities rose 20% over the first half of this year and have exploded by more than 105% since the beginning of 2001. This situation is dangerous because it is how the Bush Administration is in part funding the federal government –by selling our debt to the Chinese. This August, the Congressional Budget Office (CBO) projected that the federal government will accumulate a $401 billion deficit next year –not including the additional $87 billion request for Iraq.

The total? Once the war spending bill is passed, military and diplomatic costs will have reached $101.8 billion this fiscal year, up from $87.3 billion in 2005, $77.3 billion in 2004 and $51 billion in 2003, the year of the invasion, congressional analysts said. Even if a gradual troop withdrawal begins this year, war costs in Iraq and Afghanistan are likely to rise by an additional $371 billion during the phaseout, the report said, citing a Congressional Budget Office study. When factoring in costs of the war in Afghanistan, the $811 billion total for both wars would have far exceeded the inflation-adjusted $549 billion cost of the Vietnam War.

We not only have borrowed from Social Security to finance the war effort(Hmm-I wonder-is that why they'd like to "phase SS out"?, we borrow from foreign countries-51% in 2005. China talks about selling our treasuries from time to time-somehow we manage to stay in their good graces. But what does that really cost us?

If you own a company, which sells shares of stock, you don't want anyone(but you) to own a controlling interest...

Answer 3

The US government has debt to finance government spending that far outpaces tax revenues. About 40% of the spending is on redistribution programs like Social Security, Medicare, and Medicaid. The military budget only makes up about 20% of government spending. Foreign aid rarely exceed 2% of spending. About 10% of the budget is paying interest on the debt to pay money borrowed in the past.

Federal revenues are at an all time high, but the government still outspends what it brings in.

The cost of the Iraq war is about 4% of the annual budget, even if you use the numbers of war protestors.

Answer 4

A. Corrupt federal officials who spend more money than the government earns on pork-barrel deals and unconstitutional social programs such as Medicare, Medicade, Welfare and Social Security.

B. Moral bankrupcy has led to the inability of all of us immature Americans to restrain our spending habits, resulting in a credit deficit. If Americans saved more money, the supply of domestic loanable funds would increase, interest rates would decrease, and there would be international demand for borrowing from American banks instead of the other way around.

But no matter what the spending habits of the American people, if the government still spends irresponsibly, the national debt will go up. However, I think the government's spending habits are symptomatic of average Amercian spending habits.

But it's not quite as bad as you think it is.... yet.... Most of the national debt consists of treasury bonds and such. In other words, most of the national debt is held by Americans. However, if we continue as we have been, that will change.

Answer 5

You are confusing issues. The US controls over 1/4 of the worlds total wealth. It has less than 15% of the world's total debt. It is like asking, why does Bill Gates have a 1 million dollar mortgage, when so many poor people owe nothing? Bill Gates has a large mortgage, but he also has huge assets. The same is true with the US.

Answer 6

America is like the guy with Porsche and the nice Suit who shows up at the club to look good, then goes home to his mothers house later. We call these people the thirtythousand dollar millionares..

Looks good at first glance, but wait till the credit card bills start rolling in.

It's not good to borrow a lot of money from yourself...as America does!

Answer 7

The Chinese government manipulates the value of its currency relative to the US dollar, which allows goods produced in China to cost very little when converted to US dollars, and forces China to buy US dollars to keep its exchange rate manipulated to its advantage.

The way the scheme works is simple, but devious: China doesn't let supply and demand determine the exchange rate between the dollar and their currency (the RMB) - instead, the government has a law that effectively fixes the value of their currency so $1 US is worth ~8 RMB. Without this law, the actual exchange rate would be ~6 RMB per $1 US, because Americans buy so many Chinese goods that the demand for RMB would go up. So there is a difference of 2 RMB per $1 US between what is fair, and what the Chinese government says the law is. To maintain this difference, the Chinese government is forced to buy US debt - Treasury Bills and Treasury Notes and Savings Bonds and things like that. And because the exchange rate makes the Chinese currency so cheap, Chinese goods cost less than US goods, so Americans are able to buy more of them. Which forces China to buy more dollars, and allows Americans to keep getting cheap Chinese goods. It's like a pyramid that keeps getting bigger and bigger, a giant ponzi scheme, as China keeps buying US dollars and Americans keep buying Chinese goods because China is paying to keep the exchange rate favorable towards Chinese industry.

Answer 8

America's strong economy makes it very credit worthy and as long as this remains the case Americans can live for today and pay for it tommorow.

Speaking of debts....the UK just finished paying off a huge 50 year debt to the US for a loan taken out after world war two. Irrelevant but I felt like mentioning it.

Answer 9

Because politicians want to get re-elected.

They don't want to become unpopular by cutting projects or raising taxes, so they borrow money by issuing government debt to finance the difference between spending and tax-income.

The USA owes 4 x GDP. If they pay 5%, they are paying 20% of GDP in interest every year. That's like you spending one fifth of your income on past debts.

Answer 10

We spend more then we make, give tax cuts to the very rich and the revenue goes down and the spending increases, the rich keep more of their money and the poor pay for it. Ah, is having a repuglican administration great.