National debt is a cloudy topic connoting a negative impact. For instance, our debt has exceeded 35 trillion dollars, a very scary number. But what does it even mean?
What is national debt?
Debt occurs when spending exceeds revenue. For instance, individuals can fall into debt when buying a mortgage for a house. Similarly, governments can accrue debt when spending and federal investments surpass federal income, obtained by taxes.
There are two types of national debt: public and intragovernmental. On one hand, public debt accrues when the government borrows money from bonds, bills, foreign governments, and corporations. The amounting interest and original cost of these Treasury securities makes up for most of the public debt.
In addition, public debt includes funding for public programs, such as disease prevention programs, which caused a spike in debt after the COVID-19 pandemic
On the other hand, Intragovernmental debt is when one area of the national government owes the other money. For example, the Social Security system typically takes their surpluses and uses it to buy Treasury securities.
Why is it Important?
National debt is usually perceived as a sign of the government’s incompetence in paying back money, but it is so much more than that. When funds are unavailable, debt allows governments to afford help to those in need. Additionally, governments do not perish, unlike people, and therefore do not have a rigid time limit for repaying. Governments could theoretically“never [pay] off their debts entirely because [they] will exist indefinitely”.
Drowning in Debt
Although in theory debt is not the worst, in practice it can be worrisome. The current value of our government’s national debt, 35 trillion dollars, is by far the highest national debt in the world. While there is a debt ceiling limiting how much we can borrow, and when it is reached, the “federal government cannot increase the amount of outstanding debt, losing the ability to pay bills and fund programs and services”. Too much debt will lead to less funding for services within the country, weakening monetary support for future generations, and even potential jeopardization of essential programs like Social Security and Medicare. If this happens, not only will the negative impacts be felt across our current economy, but the future of America may be endangered. We cannot invest in a future if we spend all of our resources paying off our debts.
National debt is a huge issue in our country, which we should keep in mind when considering potential political leaders. It is incredibly important to have basic knowledge of our financial systems and how it affects policy and lawmaking.