Is the national debt something that private citizens should really be worried about? While the national debt total is about $13.9 trillion (or $42,998.12 a person), it does not mean that each citizen has to pay their part, because the debt can roll over. The government on the other had only has to pay back the interest it owes (to keep getting money from investors), and with interest rates held so low is it even worth cutting the debt.
This article by Washington Post with a critique of Time article by Jim Grant, shows the two sides to this debate. Do you think the national debt is even worth trying to cut?
https://www.washingtonpost.com/news/wonk/wp/2016/04/15/this-is-the-worst-argument-about-the-national-debt-youll-ever-find/
In the short run, the economy benefits from deficit spending. Over the long term, a growing Federal debt can be problematic. For example, debt holders could demand larger interest payments to compensate for what they perceive as an increasing risk they won't be repaid.
ReplyDeleteI don't think our national debt is an issue. Our country is so large and integrated so much into the world economy we will always be able to stay afloat.
ReplyDeletehttp://www.nytimes.com/2015/08/21/opinion/paul-krugman-debt-is-good-for-the-economy.html
According to this NY Times article, the US has been in debt for hundreds of years as well as Great Britain and both economies have done really well for centuries. There are a lot of things that the government needs to spend money on and I don't think reducing welfare programs is the answer. There needs to be government spending in order to have a stable economy.
I think Rachel brings up a good point. The US is so interconnected that the national debt really is not a threat. Presidential candidates talk a lot about reducing the deficit and lowering national debt but honestly I don't think it matters as much as they say, so perhaps we shouldn't focus on it too much.
ReplyDeleteI disagree with Rachel and Lucas. We need to control the level of debt. With that mindset, the U.S. government will increase the debt to the point where they cannot control. An inability to control the national debt will bring another global financial crisis. Being a large country can not be the reason why we should not care about the debt. The debt level per person ($42,998/person) will be soon catching up the GDP Per Capita level. With these rate, the U.S. government will face similar situation with Greece. This is the point that the U.S. government should control the national debt.
ReplyDeleteI mean as long as the USD is the standard of the world, it isn't a huge problem that we're in debt. There are more than enough countries that are willing to purchase US debt, and the reason is because there is nothing more secure than the US economy.
ReplyDeleteLike most discussions we have two sides, both with valid points. National debt is good in some cases since other countries are invested in our economy and as Kenny said, debt is good in the short run. As long as there are countries willing to purchase U.S. debt then we shouldn't be worried about it.
ReplyDeleteThe U.S. is in a unique position with the dollar being the global currency. People have faith in the U.S. economy and the stability of the dollar, which allows it to retain its value. As a result, the U.S. can incur far more debt than most other countries since people overwhelmingly rely on and use the dollar.
What becomes problematic is when our nation is unable to pay on time. If that happens (and it has in 2011) then faith in the U.S. may be shaken and we would see less investment and purchases of our debt. Given our massive spending increases in health care and national defense, there have been huge increases in national debt to about $18.2 trillion at the moment. I think that debt isn't inherently bad, but there needs to be some control.
I agree with Anthony that USD will be the standard of the world, as it has been the "reserve currency" for several decades, since the pound lost its dominance in 1930s. However, the value of the currency is not only determined by how much it is held in other countries' reserves, but also by people's expectations of its appreciation in the future, which definitely will get affected if US kept increasing the national debt.
ReplyDeleteAlso one thing that has not been mentioned above is the fact that China is the biggest holder of US debt.
According to this CNN article from last year, unlike people's concern, China is unlikely to unload all its US Treasury holdings and let the borrowing costs soar.
But China may need to unload holdings in the need of cash to stabilize its own economy. And the amount of such action is in question, and this will dramatically impact the US economy.
Still, there always will be people demanding US Treasury and USD probably will stay as the most significant reserve currency at least within our generations.
Yet, just like Jay said, when US becomes insolvable once again, it will impact the credit rating of the US much greater than it did in 2011. It wouldn't just fall from AAA to AA+, and be upgraded back to AAA within two years.
It will be far more severely affected and the downgrade will last much longer.
http://money.cnn.com/2015/09/10/investing/china-dumping-us-debt/
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