eli5 If the U.S. is in so much debt, how do they remain one of the most powerful & influential countries in the world?

Question

I feel like the United States is always meddling in other countries affairs and yet still climbing further into debt. Kind of like someone giving you advice on a golf course who is terrible themself. Is it the military presence? Economic relationships?

In: Economics

Answer 1

You’ll also need to distinguish between the total debt and the US government debt. I am assuming you mean government debt. One of the first things to understand is that government debt cannot be treated the same as personal or business debt. The rules are very different.

The US is in a fairly unique position for historical and other reasons. For smaller and not so creditworthy governments (high political risk, unstable economies, high social unrest etc) they may have to take loans in foreign currencies. Governments of more established economies (EU, Japan etc) probably don’t. So there is nuance on what kind of debt government takes on too.

First, all (pretty much) US government debt is issued and paid back in USD which the US government controls. It is, in theory, possible for the US government to simply print as much USD as needed to pay off this debt. It won’t do so because that will almost certainly damage or destroy the US economy. The reasons for the debt are many which require some understanding of how modern economies work.

Debt is the result of a transaction. There is a borrower and lender. Because the US government is seen as safe, it can ask for loans and really has no shortage of entities willing to lend to it. Some are required to (like Soc Sec) others do so because the majority of their income derives from the US economy and they accumulate USD and need a safe place to invest.

To cut this comment short, although the debt is high by absolute numbers, the typical measure of the debt load is to normalize it to the size of the economy. The US economy is huge so the debt/GDP ratio of the US government, while high by historic standards, isn’t the highest in the world. (maybe around the 10th) The US debt fuels it’s economy and the US economy (the demand and consumption) is crucial for many other economies around the world. Many countries would support it simply because not doing so would damage their own economies badly.