Should We Worry About The National Debt?

Aug 31, 09 Should We Worry About The National Debt?
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The Obama administration recently revised its estimate of the ten-year deficit. Previously estimated at $7 trillion dollars, officials believe that the deficit will increase to $9 trillion dollars. These astronomical sums are going to be more fodder for conservatives seeking to derail Mr. Obama’s ambitious domestic agenda.

Many are already arguing that this effectively takes healthcare reform off the table. While I agree with most of the Obama administration’s policy proposals, many officials are far too complacent about the growing federal deficit and national debt. It has been convenient to pass this massive debt on to the ensuing generations. However, this bill will need to be paid.

The federal deficit is the amount of money the federal government spends each fiscal year in excess of the revenue it collects. The total amount of borrowed money equals the national debt. The national debt is the total amount of funds that the government has borrowed and not repaid.

For the 2009 fiscal year, the federal deficit is expected to be approximately $1.6 trillion dollars. Our national debt is hovering around $11.8 trillion dollars, which equals about $29,000 dollars for every man, woman, and child in the country. The government funds this debt by selling treasury bills.

While these numbers are exorbitant, as long as the debt was a reasonable percentage of GDP. Traditionally, as the economy grew, it could handle larger debt loads.

Now, since the economy is shrinking, the government has been borrowing more money, while debt as a percentage of GDP increases. Foreign markets, which have traditionally funded our debt, have grown more reluctant to continue buying our treasury bills.

These countries, such as China, were the primary reason that credit was ubiquitous and interest rates stayed low over the last few years. However, as our economy continues to stagnate, the value of the dollar decreases.

In essence, we are no longer a good investment. If private holders and countries chose to stop financing our debt, we would need something more effective than caller id to dodge these creditors. We ignore this fact at our own peril.

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1 Comment

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