History of National Debt of United States | Consequences & Impact on Economic Growth

History of National Debt of United States | Consequences & Impact on Economic Growth |George Walker Bush and Barack Obama’s Presidency | Managerial Economics

History of National Debt Structure of United States 

National Debt of the United States can be referred to as the monetary amount that the federal government owes to the creditor. The national debt can be divided into two parts: Governmental Debt and Public debt. Generally, because of the huge expenses and expenditure by the government on developmental activities, tax variation, and unpaid credits the governmental debt seems to be always increasing.

 

If we look at the national debt of the United States then we can see that during the period of economic recession and the war, there was a heavy increment in the national debt which was actually because of GDP increment (Meade, 2004). The decrease in national debt can occur with factors like inflation & GDP growth. There has been an increase in the national debt of the United States after the Second World War (1945) to around 113% which was then decreased in the following 35 years. Various concerns have been shown regarding the sustainability of the fiscal policies of the nation as there has been a huge growth in the number of old people and there has been a huge increment for the medication cost for them. If we look at the history of national debt then we can see that in 2016 around 45 % of the national debt of the United States was by foreign investors from Japan and China.

 

There has been a constructive decline in the level of debt from the year 1789 and also during the period of Truman’s presidency (after world war II) debt was increased to its highest level. After the end of world war second, there has been a decline in the national debt of the United States and during the period of Nixon, it was at its lowest point (1974). Since then the national debt of the United States has been increasing but somewhere stagnated at the time of the presidency of Clinton and Carter.

 

There has been a massive increment in the national debt in 1980 because the decision has been made to lower taxes & military expenditures were increased which was then followed by a decrement of debt in 1990 as taxes were increased & military spending had lowered. The financial crisis which hit the economy of the world between 2007 & 2008 impacted the public debt (part of the national debt) of the United States by extremely raising the level of debt.

 

George Walker Bush and Barack Obama’s Presidency & National Debt of United States

Between GW Bush & Obama’s presidencies, the level of the national debt of the United States has been increased which was $5.768 trillion when GW Bush left the office to $14.071 trillion after Obama took the office (Kaufman, 2015). During the presidency period of Obama, the national debt of the United States did increase to a very high level which was on an average of yearly $1.723 trillion by GW Bush. We cannot only blame Obama for the increase in this level of debt because the data did flow from the budget of the year 2009 which was not signed by Obama (Riedl, 2009). Under the signature of Obama, the sum of around $225 trillion amount was included.

 

If we compare the spending level of debt between the presidency period of GW Bush and Obama we can see that on the basis of national debt management GW Bush was way far than Barak Obama (PHILLIPS, 2012). The total budget that has been operated by GW Bush is about 3.283 trillion dollars for 8 fiscal years in deficit spending whereas Barack Obama’s spending deficit is around 2.826 dollars just within 2 years. It took GW Bush yearly only $410 billion dollars to operate whereas Obama operated at a yearly amount of $1.4 trillion dollars.

 

Consequences of a large National Debt and its Impact on Economic Growth

As per the economic perspective, there exists a negative relationship between Large National Debt & the economic growth of the nation (Ugo Panizza, 2014). With the increment in national debt, it becomes very difficult for the government of the nation to sustain. Some of the major consequences of a large National Debt on economic growth can be explained below:

 

  • The government draws money from the national investments which occur when the government does not have a sufficient amount to invest in potential projects. This reflects that heavy spending has been done by the government but there may be no possibilities that revenues can be generated as there was a shortage of capital to reinvest ultimately affecting negative growth for the economy of the country.
  • A large number of debt impacts negatively on taxation policies & government spending. It is just like when the government has already lots of debt to repay then he looks at the various ways to sustain it whether by increasing taxes which negatively impacts the economic growth of the nation and reinvestment cannot be possible.

Possibility for the United States to default on its Debt

Looking at the history of the United States in relation to its National Debt, we can see that there has no record that the country has defaulted on the national debt and if it happens in the future we cannot even imagine how the results can be aroused. Truly saying it is impossible for the United States to default on its Debt (Harvey, 2014).

Mainly in two ways, the United States can default its national debt which includes: Congress’ failure to increase the debt ceiling and if the interest on various monetary instruments like treasury bills, notes, and bonds are not paid causing difficulties to the government to auction their securities when needed.

Economist Paul Krugman not alarmed for high increment in National Debt of US

The economist and Nobel Prize winner Paul Kraugman was not alarmed for the high increment in the National Debt of the United States he argued and made various assumptions that the investors need to not worry about the increasing level of the national debt of the United States.

Conclusion

National Debt of the United States can be referred to as the monetary amount that the federal government owes to the creditor. If we look at the national debt of the United States then we can see that during the period of economic recession and the war, there was a heavy increment in the national debt. During the presidency period of Obama, the national debt of the United States did increase to a very high level which was on an average of yearly $1.723 trillion during the period of GW Bush.

As per the economic perspective, there exists a negative relationship between Large National Debt & the economic growth of the nation. Looking at the history of the United States in relation to its National Debt, we can see that there has no record that the country has defaulted on the national debt and if it happens in the future we cannot even imagine how the results can be aroused.

References

Harvey, J. T. (2014, August 14). It Is Impossible For The US To Default. Retrieved from Forbes: https://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/

Kaufman, S. J. (2015, November 15). U.S. National Security Strategy from Bush to Obama. II(2).

Meade, J. E. (2004, July 14). Is the National Debt a Burden? Journal of Oxford Economic Papers, 10(2), 163-183.

PHILLIPS, M. (2012, November 13). The Long Story of U.S. Debt, From 1790 to 2011, in 1 Little Chart. Retrieved from The Atlantic: https://www.theatlantic.com/business/archive/2012/11/the-long-story-of-us-debt-from-1790-to-2011-in-1-little-chart/265185/

Riedl, B. (2009, March 15). The Obama Budget: Spending, Taxes, and Doubling the National Debt. Retrieved from The Heritage Foundation: https://www.heritage.org/budget-and-spending/report/the-obama-budget-spending-taxes-and-doubling-the-national-debt

Ugo Panizza, A. F. (2014, September 10). Public debt and economic growth: Is there a causal effect? Journal of Macroeconomics, 41, 21-41.

 

 

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