US Debt

International Mar 23, 2021

The US owes India USD 216 billion in the loan as its debt grows to an all-time high of USD 29 trillion.

The US debt is the sum of all outstanding debt owed by the federal government. About two-third is debt held by the public, the government owes a debt to buyers of US treasury notes including companies and foreign governments, the remaining third is intragovernmental debt the treasury owes this debt to various departments that hold government account securities. The biggest owner is social security

How did it get so big?

The US debt has increased by 800% in the last 50 years and has exceeded $29 trillion as of 2021. This figure includes both debts held by the public as well as intra-governmental debt.

* Federal Budget Deficits

The national debt is an accumulation of the federal budget deficit each new spending program and tax cuts add to this debt. Barack Obama added $8.3 trillion to the debt, a 70% increase that is due to the American Recovery and Reinvestment Act (ARRA) stimulus package that halted the 2008 financial crisis and included both tax cuts and increased military spending.  President Trump is the second largest contributor to the tax debt he added dollar 6.7 trillion to the debt.

*Social Security Trust Fund

Every president borrowed from the Social Security transfer the fund took in more revenue than it needed through payroll taxes. Ideally, this money should have been invested to be available when members of the generation retire instead the fund was loaned to the government to finance increased spending.

*Investment from other countries

Foreign countries like China and Japan buy treasury to invest their export proceeds that are dominated in US dollars they’re happy to lend to America the largest customer so that it will keep buying their exports.

How debt affects the economy?

In the short run, the economy benefits from deficit spending because it drives economic growth and stability. The federal government pays for defence

healthcare and contracts with a private firm who then hire new employees these new employees then spend the government-subsidized wages on groceries and day-today essentials that boost the economy. As a part of the components of GDP federal government spending contributes around 7% Over the long term debt holders would demand larger interest payments this is because the debt to GDP ratio increases and they would want compensation for an increased risk. Lower demand for treasure supposed downward pressure on the dollar value is tied to the value of treasury securities as the dollar decreases foreign holders get paid back in a currency that is worthless that further decreases demand the meaning of this foreign holders would have become more likely to invest in their own countries at that point the US would have to pay higher interest payments.

Impact of coronavirus

The COVID-19 pandemic in the US impacted the economy significantly as businesses were shut down. About 16 million people filed for unemployment insurance. It caused the number of unemployed people to increase significantly, which is expected to reduce tax revenues by an increase in automatic spending for unemployment insurance and national support. As a result of the adverse economic impact, both state and federal budget deficits will dramatically increase even before considering any legislation. To help address lost income for millions of workers and assist business President Trump acting on the Coronavirus Aid Economic Security Act (CARES) it included loans and grants for business along with direct payment to individuals and additional funding for unemployment insurance. The committee responsible for the federal budget estimated that the budget deficit for the fiscal year 2020 would increase to a record dollar 3 trillion or 18.7% as GDP.

This debt is estimated to increase up to USD 104 trillion by 2050 The Congressional Budget Office forecast debt would rise up to 200 per cent

“Today as I stand here right now we have USD 27.9 trillion in a national debt that is actually a little more than USD 84,000 of death to every American citizen right here today,” said Alex Mooney

This article has been written by Siddhesh Patil for The Paradigm

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