America’s National Debt
Despite the huge amounts of money the U.S. has to pay off, why do investors still invest in our country?
We would all love to watch the trillions of dollars of debt we rack up simply disappear. Unfortunately, we don’t live in the magical wand-waving world of Harry Potter.
The current U.S. national debt is 35 trillion dollars, and people approach this issue in different ways. Some think that we are way too far into our debt to turn this around, as they believe that that it could lead to a budget crisis, lead to rising interest rates (if other countries don’t believe in the U.S.’s ability to pay back back debts, they wouldn’t want to lend them money), and greater economic instability. Others do not think that this is too significant. But how can a country possibly pay off 35 trillion dollars, especially when we are so far deep?
Taxpayers in the U.S. pay more than 1 trillion dollars a year just to pay off the interest that is mounting on our national debt, and according to CNBC, it is growing by 1 trillion dollars every 100 days. In these situations, there are only a few things the government can try to do, and they are all terrible options.
The first option is to raise taxes. This may seem like a good idea. If you taxed the rich billionaires, the debt might be severely dented. However, even if you were to combine all of their money, it would be equivalent to only about ⅛ of the 35 trillion.
Another logical thing you might think of is to simply just print more money. However, this would mean that while more money would be available, the amount of goods would stay the same. The prices of goods would rise, and the faster the prices spike, the more money would be printed, elevating the prices even further. Inflation has wrecked other economies like those of Zimbabwe, Argentina, and Germany.
You could also try using a combination of spending less money and increasing revenue from taxes. This seems like a good idea, but it is unlikely to happen. In 2010, The Simpson-Bowles Plan tried to gain favor in Congress to use these two strategies to reduce the US deficits. However, this idea did not get passed. This, combined with the fact that more than 80% of Republicans pledge to never raise taxes, this is likely not happening in the U.S.
Finally, you have the option of defaulting, or simply not paying your debts. We would all love to watch the trillions of dollars of debt we rack up simply disappear. Unfortunately, we don’t live in the magical wand-waving world of Harry Potter. This would eliminate the savings of everyone who invested in the country, but it would also break apart the economy and spike unemployment rates.
Then how come economists don’t care about the debt? Well, after the Great Recession of 2008, President Barack Obama spent hundreds of millions to help revive the U.S. economy, and many believed that interest rates would spike up. In reality, they actually ended up going down. Some economists realized that if you were to pay money to help the economy, the amount it increases would be more than the amount you spend.
Treasury Secretary of the U.S. Janet Yellen summarizes, “Interest payments on that debt relative to GDP have not gone up, at all,and so, I think that’s a more meaningful metric of the burden of the debt on society.” Basically, she is stating that since the ratio of interest rates on the debt to the federal dues is relatively the same, a huge federal debt does not mean much to the burden of the national debt, as shown in the months following the Great Recession. After all, if the amount you pay to help the economy is more than the interest you are paying on the debt, your economy would only go up. This, along with the fact that the U.S. is a country basically built on debt, is why investors think that investing in the country is worth the risk.
Our national debt is huge, and some think that we will have to default to get out of this situation. However, as Janet Yellen explained, you can see why investors continue to invest in our country, despite the huge amount of debt we still have.
Works Cited
McBride, James. Berman, Noah. Siripurapu, Anshu. “The US National Debt Dilemma.” Council on Foreign Relations, https://www.cfr.org/backgrounder/us-national-debt-dilemma.
“The Crushing Reality of Federal Debt.”Youtube, uploaded by StosselClassroomsDVDs, 1 July 2024, https://www.youtube.com/watch?v=rZ4zpX5FoZU&t=5s.
“Why Economists Don’t Care About the Debt.” Youtube, uploaded by Bloomberg Quicktake, 3 September 2021, https://www.youtube.com/watch?v=XC5vdEhlhbI&t=48s.
