Government debt Essay

When hearing the word â€Å"debt† many individuals may cringe to the sound of the word. The United States debt has increased tremendously in the past few years with a record 10.7 trillion in 2008. The debt continues to grow year after year making taxpayers poorer and foreign holders of the United States bonds richer. The more increase on expenditures and less GDP the United States generates will cause interest rates to go up to pay for bonds exchanges. Future generations will not be able to carry on the burden of debt because lack of knowledge and not enough time to decrease it. The Introduction of Debt Burden Debt Burden can be a stressful issue nowadays. When one think about debt burden one will simply think of it as money owed to a person, company, or country. The Economic definition is the cost of servicing debt. Debt burden affects consumers and countries. The consumer debt can come from house mortgages, interest rates, credit cards, loans, and bad investments. A country debt burden is the cost of servicing the public debt. A country debt burden may be caused by Social Security or state retirement programs and can cause imports to be more expensive, higher taxes, and cost 25% of The United States debt to be held abroad making The United States liable for external interest transfers (â€Å"Economics Help Helping To Simplify Economics,† 2013). Also countries can be in debt with one another. Government Debt and Individual Debt The government has suffered years of long-term debt because of budget deficits and the rising of the federal debt in relation to the GDP. Four factors contribute to government debt. One factor is contributed by the economic choice of spending. The growth in the government’s debt is not driven by assistance from foreign countries, funding, or defense as politicians suggest, but by its choice of entitlement spending. The unrestricted spending has declined as a share of the GDP over the years, whereas entitlement spending has increased. Second, consolidation is sought by decreasing government spending, and economic restructuring worldwide effectively has reduced debt-to-GDP ratio. An example is compared to the United States where there is little emphasis on spending restraint. Third, the choice of increasing revenue by increasing the taxes on the wealthy have only a minimal affect on the economy. The income tax is not organized well enough to gain much revenue. Finally, the United States can maintain the economy’s safety net, which without breaking the financial bank by changing its notion on entitlements. This can be done by reducing social security’s unfunded liabilities and gradually increasing the age, which benefits are collected, and slow the benefit growth for those Americans who better off. Individual (consumer) debt is debt used to fund spending rather than savings. This includes debts that incur based on purchasing goods, which are not consumable, or those that cannot appreciate. The most common source of consumer debt is credit cards, payday loans, and other consumer finance with high interest rates. There are also consumer debts known as long- term, which is considered useful investments, such as homes or automobiles (consumer goods), which are usually not considered a consumer debt, for example, a television set. America’s Debt to Income Ratio as Compared with Other Countries Every time a conversation flare up there is always a conversation about how bad the United States economy. This appears to be a false statement about the economy because the citizen of America is still living above their mean. American always has been the scapegoat when the economy is looking bad. American Citizen acted surprise when the statistics came out for the comparison of the United States against the other nations. The international Monetary Fund is very accuracy because of the market research done by the financial analysis. The International Monetary Fund is used to measure the 10 wealthiest nations in the world (in terms of GDP). The United States came in first and Japan was second, followed by Germany, China, United Kingdom, France, Italy, Spain, Canada, and Brazil. Usually the nation that produce the more GDP is the nation that spend more to make up this GDP. The same goes to individual, the more they make, the more they spend out in the economy. There are many factors to consider for a nation debit, which include the sum of the citizen’s outstanding consumer debit and any other financial factors and also included loans, trade deficits, and budget deficits. United States, United Kingdom, Germany, France, Italy, Netherlands, Span, Ireland, Japan, and Switzerland are the 10 top debtor in the nation, this came from the CIA World Fact book. Interest Rates and Debt Burden The United States debt burden has become so large that their interest costs on an annual basis have outgrown their Gross National Product (GNP). Their debt problem at some point will be a problem for the American people, either through cuts in social and government programs or higher tax burdens for the younger generation. The majority of interest is paid to treasury notes and bond, foreign domestic notes and bonds, state and local government securities, and savings bonds. Continuing to increase the debt without taking in matching revenue will have an enormous impact on their debt burden, recession recovery, and economic growth. Projections for the Deflict The projection for the deficit by the Congressional Budget Office (CBO) is expected to fall to $845 billion this year. In the last five years, this is the first reading that fell under $1 trillion. The CBO estimates that the deficit for 2014 falls to $616 billion and $430 billion in 2015. The CBO also assumes that unemployment rates for 2013 would be 8%, and are expected to decrease by .4% in 2014. The estimation by the CBO for the GDP growth is 1.4% in 2013, which is assumed to accelerate to 3.4% by 2014. . Reference America’s Debt to Income Ratio as Compared with Other Countrieshttp://www.creditloan.com/blog/americans-debt-to-income-ratio-as- compared-with-other-countries Colander, D. C. (2010). Macroeconomics (8th ed.). Retrieved from https://ecampus.phoenix.edu/content/eBookLibrary2/content/TOC.aspx?assetdataid=84a83693-c978-4618-8727-3b6fb4d93aaa&assetmetaid=95e16f89-76ec-4d53-a7da-699aabdb7cfa Economics Help Helping To Simplify Economics. (2013). Retrieved from http://www.economicshelp.org/dictionary/d/debt-burden-ratios.html Eleven O’clock Associates, LLC . (2013). Retrieved from http://current-economic-conditions- effect-savings-and-investment-plans-global-inflation-or-deflation Ro, S. (2013, February 5). Business Insider. Retrieved from http://www.businessinsider.com/cbo-budget-and-economic-outlook-2013-2 Still on the Cliff. (2013). Retrieved from http://corp.bankofamerica.com/business/bi/perspective/resource?p_a_id=668579&g_id=10157&cm_mmc=GCB-Integrated-_-Google-PS-_-government%20debt-_-May%202013%20-%20Still%20on%20a%20Cliff%20-%20Gov.%20Spending%20-%20Phrase