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
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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