The current US national debt issue is directly caused by the inflation rates, interest rates and the financial state. These factors also put pressure on the worth of the dollar, thus, increasing the chance of inflation or devaluation. The U.S. dollar is regarded as the reserved currency around the world. Should a different currency replaces the dollar, the nation will have to resort to higher rates of interest to increase their funds. This occurrence could cause the US economic system to crash drastically.
The Government Accountability Office or GAO, the U.S. federal government’s official auditor, feels the nation is presently on an unstable route and that the government bodies in control are not effectively addressing the economic issues. The budget presented by the President in 2010 demonstrated that the annual US national debt will increase by no less than $ 1 trillion each year till 2019. With this figure, it’s estimated the US national debt may rise up to $ 23.3 trillion by 2019. Another reason the financial burden on the federal government has increased is the subprime mortgage crisis with about $ 10 trillion in guarantees or commitments and over $ 2.6 trillion in expenses or investments since 2009.
The U.S. has also revealed that its imports are currently exceeding the exports, thus resulting to a massive trade deficit. This deficit was made possible by the large investment funds involved and the capital account surplus. A country that is running or managing a current account deficit is required by the payment balance identity to have capital account or investment. Ben Bernanke presented in 2005 the consequences of the government’s current account deficit movement and stated that it’ll lead to imports exceeding exports. From 1996 until 2004, the nation’s current account deficit was increased by $ 650 billion. It went from 1.5 percent to 5.8 percent of GDP.
The US national debt could also affect the rates of economic growth. The Congressional Budget Office or CBO has stated the different risk factors that may cause the increasing debt levels are:
1. Increasing the part of the government savings that’ll be allotted in picking up US national debt rather than assigning it in government investments like computers and factories will reduce the output and the revenue.
2. If the marginal tax levels are increased to pay interest costs, government savings will be reduced.
3. Increasing interest cost will lead to reductions of government programs.
4. Limitations set to restrict the power of policymakers to use the fiscal policy to handle the economic troubles.
5. Investors demand increase in interest levels as a result of higher risk of economic crisis.
Numerous government agencies provided information and analysis of the budget and the US national debt. These agencies consist of the Congressional Budget Office, the U.S. Treasury Department, the Government Accountability Office, and the Office of Management and Budget. As reported by these organizations, the government is looking at crucial long-term fiscal challenges as government spending on Social Security, Medicaid and Medicare are greatly increasing faster than the economy.