History of United States National Debt

Document Type:Research Paper

Subject Area:Economics

Document 1

Over 200 years later, after country inception, crash in stock markets, failed investments by big companies, unemployment rising rates, and tech bubble bursting, the federal debt stands at $21 trillion and is still rising as at March 2018. Going back in history, revolutionary war kicked off the U. S debt, as it became difficult for congress to finance the war with British unjust taxation. Increases in taxes led to increase in borrowing from other nations. French government gave a loan of over $2 million after negotiation with Benjamin Franklin and the Dutch would also give considerable amounts in the era of President John Adams. collapse, and closure of over 18000 businesses. During the Great Depression and Stock Market Crash in the 1920s, Americans were investing largely in the stock market which went ahead to realize an $8 billion loss in market value in 1929.

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This led to high income inequality, over 25% of workforce became unemployed and several programs on social security pensions, assisting labor unions, and unemployment pay were developed by President Franklin D. Roosevelt. These programs needed a high funding and saw the national debt rise to $33 billion. The economy increased through spending in Iraq wars and homeland security; the government borrowed a lot of money from Medicare and social security, and by 2005 the national deficit was more than $8. 1 trillion. In December 2007 to June 2009 recession was characterized by housing bubble burst, government bail-outs and high unemployment rates. Defaults by homeowners to pay their loans and failure of banks led to the government bailing out big companies such as American International Group (AIG) and Freddie Mac.

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The Troubled Asset Relief Program was passed by President George W. 2 billion in figures in comparison with 15% in the 1990s. However, in the coming years with the post-recession campaign, the national debt servicing cost will nearly triple as expected by 2027. Thereby, the United States government will be paying high payment interests than its paying on national defense. 4 Economists have argued that increased public spending levels are likely to hurt the economic growth by crowding out private investment. Options to borrow in the future are also likely to be constrained as a result of the high debt. An addition of $100 billion would be realized on total borrowings by 2015 per year; if no borrowings are made after 2015 it’s important to note that there would no shrinkage in debt service.

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It is notable in 2016 a balanced budget is run by the government, but still an outstanding debt of $10 trillion is recorded; this means, the debt service need to be paid during the year and thereafter until its cleared. 6 Having that in mind, economists have stated that the continued spending by the government will result to a $53,769 debt share to every American. They have also argued that the personal income will also decrease, and could cause families to lose up to $11. 000 of their personal income annually. The interest payment burden is the real risk that the government faces with increased federal debt. Economists have said that if interest payments hit 12% of GDP there are high chances of the U. S government defaulting its debt.

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For instance, it is evident that the United States is not currently paying its outstanding debts. New treasuries are being issued to refinance the existing treasuries. S. government debt in other countries By December 2017, $1. 2 trillion of U. S National debt was owned by China. China is the largest U. 4%, making its total percentage 6. 4% of the total U. S government debt. Japan which is not far behind China has trimmed its position over the resent years but to a greater extent. However, Japan’s holdings have fallen from $1. S national debt. Cayman Islands $269 billion represent a 21. 8% increase substantially over recent years. This represents a 4. 3% of total foreign holdings and 1. Payments on interest are expected to sharply increase in the future. In 2015 Federal net interests costs were at 1.

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3% GDP and are expected to rise to 1. 95% of GDP by the year 2020. Recent 3. The table above indicates the debt-to-GDP average increase ratio for the recent 10years. Initial Debt/GDP In the year 2016 the United States national debt stood at around 107. 11% of the GDP. Since the 1990s, the public debt has dramatically increased; however, in few months the changes have been quite stable. It is clear that each time the US government runs a deficit in a given year; the borrowed money from the public always outlays the revenue balance. Comparing the sovereign protected inflation securities are trading about 0. 25% lower yield than in the United States. First, Germany can be considered more creditworthy as it has a debt of 68% of its GDP compared to 105% of US debt.

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