Like how does it affect the average citizen on a day-to-day basis?
Why do we have a national debt in the first place (as presumably the richest country in the world)? Who lends us the money, and do we have to pay them back?
Also, as I understand it, we can’t really get rid of the national debt, but we can slow down the amount of spending. Why does the rate of our debt accumulation matter?
If we’re already trillions in debt, what difference would it make at this point to spend indefinitely to improve our country?
In: Economics
the important distinction with the US debt is that we’ve never missed a payment on our debt
imagine if you were a bank and had a client who owed the bank a incomprehensible amount but for the past few decades, they never once missed a payment
are they really that “high risk?”
in the eyes of the bank, they haven’t borrowed more than they can handle
if you “lend” money to the US, they will pay you back at the amount they promised they would. the US makes so much money and has so much revenue and has so much security of future earnings that lenders don’t particularly care lol
that’s one of the reasons why during some of the past government shutdowns, their credit rating was decreased. although they didn’t miss any payments, the *prospect* of them doing so came up during discussions and that’s not good for financial confidence
if the US “borrowed” trillions, they may not have the funds to pay back what they borrowed on the agreed schedule. so although it *feels* like we owe a lot, we can handle it
edit: in the decades to come, fiscal conservatives will continue to bring up the point
“are we borrowing more than we can pay back?”
which is always a smart question to ask, but for now, it’s not an issue
notice the italics and quotation marks. it’s really hard to ELI5 this when there are thousands of variables affecting it lol. things as “unrelated” as interest rates in foreign bonds or the rate of navy shipbuilding will make the US less “creditworthy”
edit2: imagine if you had an acquaintance who always asked to borrow money to buy video games and beer and go out to eat. but sometimes they borrowed money to fix their mom’s house or buy clothes for their kid. but every time you lent them money, they paid you back at the exact time they told you they would
despite whatever they borrow the money for, they still pay you back plus interest. you can trust that and make some money off this. until the day they miss a payment, they’re effectively “free money” to lend to them
the US has been doing that for decades
The national debt is, primarily, debt to people and entities who have purchased securities from the Treasury (bonds, T-Bills, T-Notes, collectively referred to as “Treasuries”). You can purchase some, if you wanted to. A lot of it is owned by foreign countries (China, the UK, Japan, etc. The USA also owns a lot of *their* debt in turn). Basically, the government is selling the promise of money later to provide it money now, with the idea that by getting the money now and investing it back into the economy the economy (and tax base) will grow fast enough to cover the interest on the debt when it comes time to pay it off.
Of course, the US government is continually selling Treasuries and continually paying off debt, so what often happens is the US has to borrow more money to pay off the debt it already *has*. That’s why the debt ceiling debate a while ago raised concerns about the US defaulting on its debts- the debt ceiling sets a limit on how much the executive branch (who’s in charge of paying the bills and raising funds) can borrow, and they hit that limit but still needed funds to pay off the debt.
Theoretically, it doesn’t matter how deep you go into debt, so long as people are confident you are still going to be able to pay it off, thus letting you sell more securities to raise more funds to pay off your debts now. People can’t call in debts whenever, so the US can plan for decades ahead on how to pay back its debt. For decades, the USA has been such a strong and safe investment that it can sell securities for really low interest, i.e. really cheap to pay off, sometimes even cheaper than inflation, making that debt literally cheaper than free. But if the US, say, almost defaults on its debt every election cycle, people might start to get more hesitant, making debt more expensive and unsustainable.
With almost $70 Trillion dollars that Baby Boomers have accumulated ? If SHTF and Government needed to confiscate ? We are far from being a Broke Country ?
Billions of people loan you money, indirectly. You might be among them.
Lets say you have a lot of money, more than you need in the short term, but you want more money in the long run. You stick it in the bank. The bank lends it out to people who need a lot of money now, but can be trusted to pay it back, plus interest, over an extended period. A government that has never missed a payment is a great example.
So banks, pension funds, sometimes other governments, they love buying US debt.
Is the debt a problem? It costs more money in the long run, so it’s only worth it if the short term investment grows the tax income or reduces long term expenditure by more than the interest.
Spending indefinitely to improve the country has its limits. See hyperinflation in the Weimar Republic.
https://en.m.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic
Debt, if you can get it cheap enough is free money, that’s why every country out there that is remotely fiscally capable has some debt. Pumping borrowed money into economy makes it grow, making it easier to pay the debt back. If economy growth rate exceeds interest rates then it’s just a money machine.
But more debt you have, higher the interest rates get until nobody is willing to lend you anymore. And obviously that is not productive if high interest rates eat all your economic growth. So no, a country can’t borrow infinite amount of money, it gets too expensive until the country defaults or drops into hyperinflation spiral and that’s an ugly business.
Certainly not the only one, but one very important indicator to keep an eye on is debt to gdp ratio. For US that is 144% which is quite high, but not highest. Japan has 254%. OECD member with lowest debt to gdp is Estonia with just 25%
A low governmental debt also functions as an emergency reserve, gives an option to borrow a lot if you need it. With high debt you have already borrowed a lot and if an expensive emergency hits, that’s just tough luck.
We have to pay people back plus interest. These interest fees will soon be the highest line item in our budget after social security. It’s painful knowing your tax dollars are going towards some garbage program that already occurred. If we fail to pay people back, the US will lose it’s credibility and the dollar will fail.
Each year that we have a deficit, the debt increases. In 2024, it’s likely our debt will be 2-3 trillion dollars. We need drastic changes to resolve this growing problem.
Some debt is fine, as long as you have enough potential investors.
Problem is most of our investors are people’s retirement plans. Which given our aging population is shrinking. And of course we have to pay interest on that debt, and our interest payments are a growing percentage of our expenses. Which means we need to borrow more money.
At some point we can’t borrow enough to pay our expenses and either the government dramatically cuts spending or we get inflation.
I’d like to add that the national debt is invested in the economy. It’s kind of like if you used the money to fix the roof, eat, and get a new bike. If you were five
It is not a bad thing for the U.S. government to have a large debt, because U.S. government debt is literally the basis of our currency.
Dollars are, at their core, nothing more than sliced-up U.S. government debt (with a few other things thrown in, at about the level of spices in a good supper dish, for flavor).
A long time ago, most national currency was a shorthand for precious metal (say, gold). A dollar was worth so many grams of gold, full stop.
The problem with that system is that there is an optimal amount of money that needs to be in circulation, for any economy to work. The gold standard tied the total amount of money to the luck of gold prospectors and miners rather than to the needs of the economy. As the world industrialized (through the late 19th and early 20th centuries), that led to a disastrous business cycle with huge crashes about once per generation, leading up to the humongous “Great Depression” in the late 1920s and early 1930s.
In the mid 20th century we converted to debt-based currency. That is good because when the economy needs more money the government can create more by selling bonds and spending the proceeds.
It is not necessary (though it is helpful) for the government to spend that money on anything useful. Simply wasting the new money does about the same thing that mining for gold did: it costs effort to create new money, which is important to keep the economy lubricated and working. But governments that use the new money wisely get an extra benefit: more infrastructure and social safety nets, to turbocharge the economy more than extra money alone can do.
Since the U.S. government debt is denominated in dollars, and since the Federal Reserve is a willing buyer of bonds, it is not possible for the government to be forced to default on its debt: it can always sell more bonds to the Federal Reserve. If it does too much of that, there will be inflation — and as dollars get smaller, the debt itself will get smaller. That is actually sort of brilliant because it prevents debt-based hyperinflation (like Zimbabwe went through). The only real threat to the U.S. government’s ability to make payments is idiot grandstanding econo-terrorists in the House of Representatives, who will use brinksmanship with the currency itself to try to get their way in lawmaking.
The “debt ceiling” itself is an early form of debt grandstanding from the late 20th century. Notably, Bill Clinton managed to approximately balance the Federal budget during his last term — which led immediately to W Bush slashing taxes to gain a useful deficit and prevent the economy from seizing up.
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