America be prepared Uncle Sam is going bust

Introduction

Most people understand the concept of debt but not the degree of how serious our national debt has increased. We need to be aware, be involved and get what you need to know to be prepared. National government financial debt is created when the expenditures in a fiscal year exceed tax and fee revenue. The national government finances the excess of expenditure over revenue by borrowing. For example, the U.S' government auctions off U.S. Treasury bills, notes, and bonds (U.S. bonds, hereafter). The U.S. Treasury defines the Gross Debt to be the value of all national government bonds outstanding. However, the media and the public often refer to this same concept as the National Debt. Gross Debt and National Debt are synonyms. US Debt Crisis is one of the major news flashing in media and clogging our minds for quite some time now. There were many issues which led to it, and there are various possible repercussions to it: the downgrade by Standard & Poor's being one of them. This piece is an attempt to chart out the causes that led to the grim situation and possible courses of action.

Discussion & Analysis

National Debt and Deficits

In this section, we will discuss how serious U.S national debt has increased. The researchers are still somewhat optimistic that the American leaders would rely upon the lessons from history to inform their decision making. However, Republican opposition to funding consumer financial regulation and intransigence regarding revenue increases during recent debt ceiling debate have highlighted the fact that basic economic theory has been trumped by ideology and raw special interest politics.

A government's ability to sell bonds depends on creditors' faith that the bonds will be repaid and on the creditors' financial capacity to buy the bonds. Creditors' faith depends on the economy's ability to generate future tax revenue, which depends on the economic growth rate. Creditors' financial capacity depends on their incomes and saving. Because saving cannot grow faster than the economy in the long run, creditors' financial capacity to buy bonds is limited by the economy's long-run growth rate. Therefore, if Gross Debt grows faster than the economy in the long run, the economy's ability to generate tax revenue to service debt, and creditor's capacity to buy new debt, falls short of the government's liabilities. If the public understands that the Gross Debt continually grows faster than the economy, creditors will demand abnormally high interest rates to compensate for the risk of not being repaid or creditors may simply refuse to purchase additional government debt. In this case, the government faces a “debt crisis,” and the government's choices become severely constrained: (a) taxes must increase or expenditure must be cut, or both, or (b) government must default on its liabilities and convince creditors to reschedule debt payments. If these options are not available, the only recourse is for the government to repudiate the debt. In this case, government simply declares its intention to not to repay the ...