The National Debt Essay

4829 words - 20 pages

BackgroundIntroduction to National DebtThe national debt is a term used to refer to the money or its equivalents in credit that the government owes at any level. It spans from local governments through municipal government as well as federal and state governments. The money owed at any of these levels constitutes part of the national debt. It is also known as public debt since the money is owed for past expenditures on public infrastructure and facilities. The difference between government expenditure and receipts, on the other hand, constitutes what is commonly known as the budget deficit. A huge part of the deficit is what makes up the national debt. This is due to the fact that the ...view middle of the document...

This is informed by a purely judgment-based prudence accounting that treats the government as a business entity. The national debt can also be classified by duration. The debt that is due for repayment in under one year is known as short term debt while the debt that is due for repayment between one year and ten years in known as medium term debt. Finally, any debts that are owed for repayment in a period longer than ten years are commonly known as long-term debt and this comprises the bulk of the current national debt.
The United States federal government is charged with the enormous responsibility to provide services to their people as well as ensure that they meet a wide range of the demands and aspirations of the populace. The government is structured to cater for these costs by levying taxes on the populace. The taxes levied on these citizens are mostly sufficient to meet the demand for cash except in times of war when the government was compelled to incur huge borrowings to meet their expenses. However, therein lays a problem because the taxes are also used to provide services to the people in the forms of police, firemen, and many other public services. If these services cannot be provided by using taxes alone, then the country must go further into debt to continue to provide a high quality of life for its citizens. Eventually, the practice of borrowing large amounts from external sources and deferring payments to meet the citizen’s needs and provide essential services has become commonplace in the United States.
There are two outcomes of the national debt. First, taxes are raised to help finance the government debt and provide public services to the general populace. This can often lead to a reduced availability of monetary resources for the general population because taxes are raised to cater for these finances. The taxes further reduce the savings of these tax payers since their expendable income has faced a reduction. As the government reduces the liquid cash for physical assets, there exists a consequential decrease of cash in circulation (Diamond 1965).
How the situation has unfoldedThere was a very huge leap in the national debt during the tenure of President George W. Bush. Upon his ascendance into office, the United States had a surplus in their annual budget. When he took office the national debt stood at roughly $5.7 trillion. By the time President Bush’s tenure was over, the country had a national debt of up to $12 trillion and reeling in an annual budget deficit of up to $2 trillion (Quinn 2009). Many analysts have attributed this to two waged wars that have been waged at the cost of close to one trillion dollars and have been fully financed through national debt.
This situation paints a very grim picture for the financial situation of this nation. It gives a look of instability for the federal reserves as well as creating a situation where the economy could be fairly judged to be teetering on the brink of...

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