The American Dream or the American Debt?

Let’s start with the fact that the only time the US has been debt free was in the year 1835.

Now, what is national debt?

Government debt is money that has not been raised by taxes, and has been spent on goods and services. This money has been borrowed. When the government runs a deficit budget, it costs them more to administer the country, than it receives in revenue. The government has two ways to make up for this shortfall-

(a) print more currency notes,

(b) borrow money.

a) Although printing money sounds like an easy solution, doing so would cause a huge amount of inflation. This is because there’s no corresponding growth in the economy to justify this surplus growth of cash .

b) Borrowing money doesn’t only include borrowings from other countries. Sometimes, the government issues bonds, through which they promise to repay investors after a certain period of time. Over 50% of the 21 trillion dollars in debt is owed to US investors, with the remainder
half owed to investors outside the country.

All countries have a national deficit one time or the other, but the US, with its whooping 21 trillion dollars in national debt, has seen a tremendous increase in its debt-to-GDP ratio. The number has gone from 62.5% in 2016, to 106% in 2018.

US’s Debt History

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Debt is created either by excessive spending, or tax cuts. In 1939, the US debt was 40 billion dollars.
After the Second World War, the US debt rose to 271 billion dollars. After some payments and fluctuations, this number stayed the same until 1957. 20 years from there, it rose to 699 billion dollars.
This could be blamed on the nations excessive spending on military (since its independence, the US has only spent 21 years at peace).

The US debt spiked since the 9/11 attack. Military spending of the country increased to start its ‘war on terror’ campaign. In the 17 years of its existence, the campaign itself has increased the US debt by 2 trillion dollars. Aside from military spending, bank bailouts have caused the economy 350 billion dollars, and rescue missions for hurricanes have contributed to the massive debt as well.

Another surprising fact is, the US has already declared itself bankrupt 5 times. The first time the US declared bankruptcy was in 1790, and the last was 1933.

The more the debt grows, the more is spent on interest repayments and less is allocated to what the government should really be doing with taxpayers money- investing on health and welfare services..
Debt can be reduced in two ways. It can either be forgiven, or paid back. With the amount the US has borrowed, the former option just doesn’t apply. For a government to start paying back its debt, it will need to spend less than it earns in taxation and run on a surplus budget. Seems simple, but problems arise when society becomes accustomed to a level of government spending, especially when they directly benefit from it. Society wouldn’t want to see a cut in spending on healthcare, school, and other essential services. At the same time, they also wouldn’t want to pay more taxes.
If the government can pay back its debt, it will lead to an increase in government spending and gradually, a better standard of living for people in the US. Although at the rate that they’re at, this just doesn’t seem possible.

The US, being a very important member of the IMF and World Bank, should sort out its own finances before trying to help other countries.