debt

The US national debt hit a new high with more than $27 trillion in October 2020, which is greater than the annual economic output (GDP) of the entire country. Where the Government used the money, and is there any benefit to our economic and our daily life or not? In this article, we are briefly telling you...

Here is the 25 years chart of US Debt:

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Here is the chart shows Percentage of US National Debt to GDP:

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US Budget surplus between 1998 to 2001:

There is a good time during USA's history.

President Clinton oversaw a very robust economy during his tenure. The US had strong economic growth (around 4% annually) and record job creation (22.7 million). He raised taxes on higher income taxpayers defense early in his first term and cut spending and welfare, which contributed to a rise in revenue and decline in spending relative to the size of the economy. These factors helped bring the United States federal budget into surplus from the fiscal year 1998 to 2001, the only surplus years after 1969. Debt held by the public , a primary measure of the national debt, felt relative to GDP throughout his two terms, from 47.8% in 1993 to 31.4% in 2001.

The Top Five US President Debt Contributors by Percentage:

Franklin D. Roosevelt (1933-1945): President Roosevelt had the largest percentage increase to the debt. Although he only added $236 billion, this was a nearly 1,050% increase from the $22.5 billion debt level left by President Herbert Hoover. The Great Depression and the New Deal contributed to FDR's yearly deficits, but the biggest cost was World War II: It added $186.3 billion to the debt between 1942 and 1945.

Woodrow Wilson (1913-1921): President Wilson was the second-largest contributor to the debt, percentage-wise. He added $21 billion, which was a 724% increase over the $2.9 billion debt of his predecessor. World War I contributed to the deficits that raised the national debt.

Ronald Reagan (1981-1989): President Reagan increased the debt by $1.85 trillion, or by 186%. Reagan's brand of supply-side economics didn't grow the economy enough to offset the lost revenue from its tax cuts. Reagan also increased the defense budget by 35%.

George W. Bush (2001-2009): President Bush added $6.1 trillion, or a 101% increase, putting him in fourth. Bush launched the War on Terror in response to the 9/11 attacks, which led to multi-trillion-dollar spending on the War in Afghanistan and the Iraq War. Bush also dealt with the 2001 recession and the 2008 financial crisis.7To

Barack Obama (2009-2017): Under President Obama, the national debt grew the most dollar-wise ($8.6 trillion) but was fifth in terms of percentage: 74%. Obama fought the Great Recession with an $831 billion economic stimulus package and added $858 billion through tax cuts.

10 Presidents with Biggest Debt Increases

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US debt Increase during pandemic:

Since March 1, 2020, Treasury borrowing has risen by more than $4 trillion. Most of that increase has occurred since March 30, 2020, which was just after the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest piece of relief legislation was enacted.

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A majority of the new debt has been issued in the form of Treasury bills. Such securities, which mature in one year or less, account for 57 percent of the increase in debt since March 1. Treasury notes, which mature in 2 to 10 years , account for 30 percent of the increase. Treasury bonds, which mature after more than 10 years, along with Treasury inflation-protected securities and floating-rate notes, combine to account for 13 percent of the increase.

Top 10 Countries with National Debt to GDP Percentage:(31st December 2020)

Country Percentage of National Debt to its GDP
Japan 237%
Greece 177%
Lebanon 169%
Italy 156%
Singapore 131%
Bahrain 128%
Cape Verde 125%
Portugal 117%
Angola 111%
Mozambique 109%
United States 108%

Why the government can't simply cancel its pandemic debt but printing more money?

With the government borrowing heavily to fund its pandemic response and recovery, it has been suggested it could simply cancel its debt by printing more money. That sounds like a simple and easy way, but it is one that would drive seriously adverse consequences.

Derived from “modern monetary theory” (MMT), the suggestion is that expansionary monetary policy (ie, money creation by the central bank) be used to finance government spending.

According to proponents of MMT, a country that issues its own currency can never run out and can never become insolvent in its own currency. It can make all payments as they come due. Therefore, there is no risk of defaulting on its debt.

This is a flawed idea based on economic misconceptions. It has been opposed by economists, liberal and conservative, including Nobel laureate and New York Times columnist Paul Krugman and Harvard University's Greg Mankiw.

So, what does happen when the government wants to spend more than it raises in tax revenue? It needs to borrow money (known as deficit financing), and so instructs the Treasury to issue debt.

There are three major types of debt: treasury bills, treasury notes and treasury bonds. Treasury bills have the shortest maturity (less than a year) while treasury bonds have maturities of ten years or more. They all must be paid back in the future.

The debt is typically held by banks, institutional investors and managed funds Because the government is not expected to default on the loans, the debt is considered to be secure. So, these bonds can typically be issued at lower interest rates than bonds from other financial entities.

Where government debt goes?

When the Federal Reserve System engages in “quantitative easing” it essentially buys up these government issued bonds. To do this, it prints currency to pay for the bonds and this currency goes into circulation, increasing the money supply.

Quantitative easing floods the system with liquidity — the amount of money readily available for investment and spending. In turn, this should put downward pressure on interest rates because money is cheaper to borrow when there is more of it.

The Federal Reserve can also lower the official cash rate (OCR) to push retail interest rates (on mortgages and savings deposits) down. The aim in both cases is to make borrowing cheaper in the hope that businesses will borrow money to invest, in turn creating more jobs.

If the US Department of the Treasury is buying government bonds from the banks and investors who had bought them earlier, it follows that the creditors have been paid off. So why can't the government simply write off this debt? The debt does not disappear , it just takes the form of that additional amount of money floating around the economy.

At some point this extra money will end up being deposited in commercial banks and be held as reserves which earn interest from the Federal Reserve System.

The currency in circulation is also legal tender backed by the authority of the government. If no one else wants to accept it, holders of this money should be able to sell it back to the Central Bank for something of value in return.

One way or another, sooner or later the debt will have to be honored.

The risk of Inflation

In the meantime, if lower interest rates do not lead to business expansion and higher production (and there are good reasons to suppose they may not) then the net result is a larger amount of money circulating in the economy with no new production happening.

This will eventually set off inflationary pressures, which make savers worse off and provide a disincentive for saving. But saving by households is fundamental to making funds available for businesses to borrow.

In the absence of increased production this extra money may also make its way to non-productive financial assets such as equity and houses, setting off speculative bubbles in those markets.

Why might businesses not expand, even with lower interest rates? In deep recessions it is not the lack of credit that holds them back, it is that they cannot sell their goods at prevailing prices. This reduces demand for labor, further reducing demand for goods because more customers are unemployed.

It becomes a vicious cycle of insufficient demand, where the key issue is not credit or liquidity but rather a crisis of confidence. Monetary policy loses its teeth at this point, leaving fiscal policy (via deficit financing or tax cuts) as the only option.

It's all about trust

However, government borrowing is a long-term game. The entire system, whether deficit financing or printing money, is based on trust — that the government will honor its debt.

Simply put, no government could satisfy all its creditors if they wanted their money back at the same time. But as long as the government keeps making the interest payments on the loans, or at least has the capacity to pay back some of those creditors ( sometimes by borrowing even more), the economy remains stable. The juggler's balls stay in the air.

If for some reason trust in a government goes, watch the balls come crashing down. Any hint of default or not honoring debt obligations will lead to long-term damage to a government's reputation and its future ability to borrow. No one will want to hold the government's debt in the form of government bonds.

When that happens, we see capital flight — money flows out of the country as people seek a return elsewhere. The value of the currency goes through the floor, with catastrophic effects on the economy, such as occurred during the Asian financial crisis in 1997.

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