National Debt: –Macroeconomic Perspective

National Debt: –Macroeconomic Perspective

For years, the issue of the Government's national debt (and its payment) has been a major political issue. As of July 1st, 2004 the Federal Debt has reached an all time high of 7.252 trillion dollars (that means that each person in the United States is be over 24,000 dollars in debt). According to economists, the debt will increase by 1.6 billion dollars per day!

In economical terms, a debt occurs when an individual or group borrows money and is charged interest on that loan. The Federal Government through deficits (spending more than what is collected in taxes) in budget spending created this debt of over seven trillion dollars. In the Revised Circular Flow Model in the appendix, we can see that there is a leakage of government spending into interest paid on its debt. The dollar amount in interest that the borrower (the government in this case) must pay to simply maintain the debt is called the debt service. Currently the debt service of the federal treasury is 576 billion dollars annually; approximately 32% of the Government's total receipts (similar to and individual's income).

With every borrower there must be a loaner, and this is true with the Federal Government's loan. Currently, the debt is distributed in several areas: (See Revised Circular Flow Model in Appendix)

Debt from all governmental trust funds totals over 3.05 trillion dollars.

Included is the 1.59 trillion dollars that has been taken from the Social Security Trust (this amount is equal to approximately 90% of the total Federal Budget).

Over 4.2 trillion is owed to the General Public in the form of U.S. Securities.

In the first part of the debt, the government has taken money from various

trust funds (account...

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...skills to invent more efficient and productive technology to lower production costs. Therefore there must be an increase in the level of education to ensure productivity increases.

With these changes made to the federal government I feel that the growing threat of National Debt can be neutralized. All we must do is the following:

Congressionally force the passing of only balanced budgets to prevent further debt.

Congressionally force that the budget pay all debt service prior to increases in any other area of the budget

Raise taxes to restore the trust funds that are exponentially creating debt

Use Monetary Policy to counteract unemployment through lowering of the discount rate.

Congressionally prevent the FED from issuing more U.S. Securities until debt is under control

Maintain a favorable balance of trade in the long term by increasing funds for education