"They say that you can endlessly look at three things - how the fire burns, the water flows and the US national debt grows."
To understand this rather abstract definition, it is necessary to decipher the very essence of the state debt. If we turn to official sources, it becomes clear that this abbreviation is the monetary equivalent of covering the resulting budget deficit. The country's debt is the result of government borrowing. It is equal to the sum of all financial deficiencies for previous years, excluding the resulting surplus.
In practice, it is customary to ignore the presence of counterclaims. To put it simply, the negative balance is not reduced by the amount of debt of other countries to the state in question. Pension and social security of the population are also not included in the list of items affecting the amount of public debt. Its size is reflected both in national currency and in any other convenient monetary equivalent. To make the comparison fairly objective, the amount of debt is published as a percentage of the country's GDP (gross domestic product).
If we turn to the definition from the Budget Code, then it deciphers the concept of public debt as the total amount of the country's obligations to individuals and legal entities, other states, as well as international organizations and other subjects of international law. It should be noted that the main reason for such a minus is not only the negative balance of the domestic budget. The national debt is also formed due to the availability of free money from citizens and legal entities.
Let's consider this definition with a more specific example. The USA is a powerful economically and politically developed state. Its national currency is recognized all over the world and is one of the most stable. The US national debt, the online counter can be seen at the beginning of the article, is divided into two parts: public and intra-government. At the moment, their total value is about $ 26 trillion. Moreover, most of the amount falls on the public share. The country's domestic debt is formed due to the formation of a budget deficit in relation to local funds (for example, pension funds). After all, such organizations can purchase securities issued by the state (non-market bonds). The beneficiary is usually the Social Security Trust Fund. All tax deductions of US citizens flow to this organization. It distributes compensation and pensions due to the population of the country and it is she who accounts for almost $ 3 trillion of the total public debt.
The public part is created at the expense of treasury securities, which are distributed among the country's FRS, various corporations, state governments, other states, and also private individuals. It must be said that it is the US bonds that are the most attractive among the world's largest investors. China is the most active participant in the country's increased national debt. He owns more than $ 1 trillion in Treasury securities. Most often, it is bonds that are purchased for a period of 10 years. They are characterized by a low level of risk of depreciation, although they bring relatively little income. Such securities can be sold at any time through the open market at the current price and at the same time practically nothing to lose from the initial investment.
Let's move on from general facts to specific figures. Below I will give a small table, which graphically presents the indicators of the current public debt of the country in question.
U.S. national debt
2020 budget deficit
Projected ratio to GDP
The monetary equivalent of the public debt for each citizen of the country
$ 26 trillion
$ 864 billion
As you can see, the numbers are quite impressive. An equally interesting point is the list of the main creditors of this state, which still occupies a leading position in the world.
Huge investments come directly from the Asian states - Japan and China. The rest of the countries have much less influence. By the way, until 2020, China was the main investor, now it has given way to Japan.
The reasons for the constant growth of the US national debt
It's actually quite simple. The answer lies on the surface, namely, in the country's budget itself. As soon as there is a deficit, the government starts issuing public debt to cover the resulting shortage of funds. Of course, it would be much easier to increase tax deductions from citizens and legal entities. But this can lead to an increase in public discontent, as well as a sharp decline in the economy. And this result is much more destructive than the growth of public debt. Banal cost cutting is also not a solution to the problem. Indeed, in this case, many industries will not receive adequate funding.
Specifically, the United States does not have the pangs of choice. In this case, the national debt is denominated in local currency, and Washington itself has direct control over it. To stabilize the resulting minus, the US FRS simply turn on the printing press at full power. The money supply released into circulation makes it possible to redeem almost all debt obligations. And this is a truly unique case, since no other state has such a privilege.
The very essence of public debt implies a high risk of default. After all, the inability to take new loans will lead to non-payment of old debts and interest on them. But the American government may not be particularly concerned about this. In the United States, a similar situation will arise only if the federal government is prohibited by Congress from raising the maximum level of public debt. I remember that in 2011, when Barack Obama was president, the country was threatened by the specter of a technical default. However, at that moment the emerging problem was easily eradicated by simply raising the level by $ 2,1 trillion.
But the ratio of GDP to national debt is the most exciting moment for all Americans. According to leading experts of the World Bank, this indicator for the United States is very problematic, as it exceeds 77% of the country's annual GDP. However, in practice, many states exist well with huge external debt. Italy, France and Japan are good examples. For many years their debt to creditors has been over 100% of GDP. However, the standard of living and economic development here clearly did not decline. The US keeps up with these countries. According to 2019 data, the ratio of the indicators under consideration was 108,3%.
Why is America so willing to lend to other countries?
To answer this question, it is necessary to take into account several important factors that significantly affect the desire of other countries to invest in the US economy:
- We are talking about the most developed power in the world. America has had this status for over a hundred years now. The economy and production of this state are at the highest level and are constantly being improved. Local products are in great demand in other countries. The oil industry, pharmaceuticals, high technology, biochemistry, aircraft and automobile manufacturing are all continuously developing and sponsored by the state. In addition, US GDP is growing by 3% annually. This is a very high indicator, which speaks of the stability of the state.
- There are many billionaire corporations in this country that are famous all over the world. Their capitalization easily covers the US national debt. So that the data is not unfounded, consider a specific example of several companies with big names. The total capitalization of just six American financial "monsters" (Microsoft, Apple, Facebook, Berkshire Hathaway and Alphabet) equals the amount of the US debt to China and Japan. And as you know, these countries are the main investors. And I named only a fifth of all large financial corporations, whose total capitalization is about $ 100 billion.
- The USA is a country that tourists from all over the world willingly visit. There are many interesting sights here that attract more than 70 million visitors every season.
- This power maintains low inflation (2%) and affordable lending rates. This is a positive factor for starting a business here. Every year more than 1 million people move here, and all of them are far from being citizens of South America. The USA is a land of opportunities, where everyone can easily establish themselves as the founder of a small private company. That is why promising entrepreneurs are so willing to settle in America and invest huge amounts of money in the local economy with their activities.
- Local education is highly appreciated. American university degrees are quoted all over the world. Graduates are guaranteed to find a prestigious and highly paid job. That is why the cost of studying in the United States is very high. But this item is also one of the branches of investing in the country's domestic economy, which stimulates external injections.
- If earlier the production of American brands was mainly based on the territory of Asian states, now the entire industry is gradually returning to its homeland. The government prefers to build high-tech factories equipped with modern equipment, controlled by just a couple of competent employees, refusing to pay thousands of outsiders. And it really saves you a lot of money.
- America is one of the leaders in terms of agricultural exports. We are talking about both the supply of grain and ready-made meat semi-finished products.
- As shows online counter, US public debt fixed in the national currency of a given country. The dollar is recognized as the most popular, stable and strongest currency in the world. With its help, transactions are carried out on the territory of many foreign countries.
Various reputable agencies give America a very high credit rating, which only a few world powers can boast. Due to this, the United States receives large loans at favorable rates and has huge investments from other states.
Do not treat the amount of external debt as a negative indicator. The fact is that international loans are issued on a principle similar to working with individuals. The higher the level of development of the country and the life of its citizens, the easier it is for it to receive financial support at low interest rates. The stability in the economy, as well as in the industrial sphere, allows attracting the most profitable creditors. The United States is at its best in this regard, so none of the investors casts doubt on the real possibility of the state in the future to pay off its obligations.
But how do the Americans themselves relate to the amount of external debt? I must say that it is very ambiguous. Many worry that the budget deficit will lead to higher tax collections, lower wages and social assistance. However, the majority firmly believe that no one will simply knock out debts, since other countries will not dare to enter into a serious conflict with the United States.
What are such huge funds spent on?
It is unlikely that America is attracting such volumes of investment just in reserve. Of course, they are all invested in the development of the state itself and its individual spheres. Here is a sample list of major U.S. spending items:
- Medicine. Many special programs in this area require huge investments. A good example is qualified assistance to low-income citizens, services for patients with certain diagnoses and people over 65 years old. This area takes in about $ 1,1 trillion.
- The program of social support and protection of disabled people, as well as pensioners. Another $ 1 trillion goes here.
- National defense. To protect the official borders and territory of the state, as well as to participate in various foreign campaigns, the United States spends approximately $ 1,3 trillion.
- Other expense item. This includes education, international politics and public transport services.
The dangerous essence of the country's national debt
At such a high level, financial matters are always a double-edged sword. On the one hand, the stability and prosperity of the United States will not allow the state to be helpless in the face of its investors. But on the other hand, big debts have never promised anything good.
The logic is pretty simple. If you took the money, then you have to give it back, and even with additional interest. And if there is a budget deficit, this will be extremely problematic. The easiest way out of this situation is to raise taxes and cut payments for social programs. But this is unlikely to please the population, which in this situation will clearly begin to resent and rebel.
In the next two decades, people born during the so-called baby boom will begin to retire. This will provoke a sharp increase in budget expenditures related to social security of citizens of this category. Most likely, the US domestic economy is simply not ready for such a financial burden.
America's external debt is steadily increasing, but the government is doing everything to somehow reduce the rate of its growth: it is restructuring, consolidating and extending existing obligations. A negative trend can really not only be slowed down, but also reversed in a positive direction. But this will require eliminating as much as 35% of the country's budget expenditures. In practice, such savings simply cannot be realized, so such a radical method remains effective only in theory.
The US government's position today
America's current debt problems are the result of a financial crisis back in 2007 and 2008. Since then, the country's leadership has raised the maximum level of external liabilities several times. And this provoked real battles in the political arena between the Republicans of Congress and the Democrats of the administrative state apparatus.
When Donald Trump ran for the presidency of the United States in 2016, one of his first loud statements was a promise to solve the problem of the country's gigantic public debt. He planned to do this during the next eight years of his reign. Trump was adamant that his homeland needed tax reforms and a renegotiation of the current terms of trade agreements. He argued that the result of the changes will be a colossal growth of the economy, which will cover the budget deficit and allow the freed up cash to pay off investors.
Representatives of the country's Democratic Party have always treated the state debt more calmly, therefore, it was the Republicans who came to power that were considered the most real "hawks" in the matter of US external obligations. However, 2017 turned everything upside down. Since then, Trump has not only actively supported the raising of the bar, but also advocated an unlimited infusion of funds from foreign partners. Democrats, however, claim that all this will lead to exorbitant debt, which the power simply cannot repay.
In May 2020, the US national debt increased by another $ 1 trillion. However, the president said that such a trend does not bother him, so trillions in national currency would be allocated to combat the consequences of the coronavirus pandemic. According to the IMF experts, the new disease will cause America's foreign liabilities to increase in 2020 up to 131,1% of the country's GDP, which at the end of 2019 amounted to $ 21,73 trillion.
In fact, the US has a lot of chances to get rid of its debt. But in any case, the reins of government will be concentrated in the hands of a few of the largest shareholders in the US Federal Reserve, which is not a government organization, but a private one.
The most probable scenario is the release of a huge volume of the US national currency into the market. As soon as the national debt gets to its critical value, the government will immediately turn on the printing press. However, you cannot just pour tens of trillions of dollars into the country's economy. The consequences of such an act will be very sad. Most likely, the financial system will decline, and because of the sudden hyperinflation, the entire economy will collapse.
It is highly likely that the United States will reform into several separate small states. This will allow America to relieve itself of responsibility for the formation of the next round of a powerful economic crisis, which will certainly grow to a global scale. At that time, a new reserve currency will appear, the owner of which will be one of the newly baked states, which was previously part of the United States. It is this country that will control the Fed, as well as the defense force of the state that has sunk into oblivion. Since almost all current financial institutions are located in America, most of the countries of the world will immediately recognize the new currency, which will change all the conditions for the functioning of the exchange.
As you can see, the main the essence of the national debt The United States is fraught with very serious consequences not only for any particular power. I voiced just one of the most likely options for ridding America of external obligations. Of course, investors will not get their investments back. In extreme cases, one credit dollar can only be reimbursed for no more than two cents.