The main consequences of our growing National Debt (2024)

FAQs

The main consequences of our growing National Debt? ›

Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar. The federal government should not allow budget imbalances to harm the economy and families across the country.

The U.S. national debt has soared to historic levels relative to the size of the U.S. economy. Many economists say that a rapidly mounting debt load could soon diminish U.S. economic growth, restrict government spending on important programs, and raise the likelihood of financial crises.

Decreased savings and income

The private sector will stop seeking investments that can generate growth due to the incentive to save. This includes the lower amount of capital available once individuals stop investing in securities offered by businesses due to treasury securities being more attractive.

Financial stability

At high debt levels, governments have less capacity to provide support for ailing banks, and if they do, sovereign borrowing costs may rise further. At the same time, the more banks hold of their countries' sovereign debt, the more exposed their balance sheet is to the sovereign's fiscal fragility.

Zero/low national debt could impact you, the individual, because government spending may be cut or you may have to pay higher taxes. Without national debt, there'd be no US Treasury Bonds — debts backed by the “full faith and credit” of the US government — because the government borrows money by selling those bonds.

The national debt can be a significant burden on a country's economy. When a country borrows money, it has to pay interest on the loan. This interest can add up over time, and it can make it difficult for the country to repay its debt. The national debt can also affect a country's credit rating.

Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt. Comparing a country's debt to its gross domestic product (GDP) reveals the country's ability to pay down its debt.

Much of the rise in the national debt is attributable to an aging population, said Rouse, with 18% of the population over 65 today, up from 12% in 1983. As the baby boom generation has entered retirement, the amount the government spends on services like Social Security and Medicaid has risen.

What are the negative impacts of debt? ›

People with debt are more likely to face common mental health issues, such as prolonged stress, depression, and anxiety. Debt can affect your physical well-being, too. This is especially true if the stigma of debt is keeping you from asking for help.

The Congressional Budget Office warned in its latest projections that US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. The actual outlook is likely worse.

Answer. A large federal debt may prevent the government from fully funding its programs due to fiscal constraints and higher budget allocations for debt servicing. It can also lead to 'crowding out' of private investment and necessitate higher interest rates to attract investors.

Nearly every year, the government spends more than it collects in taxes and other revenue, resulting in a deficit. (The debt ceiling, set by Congress, caps how much the U.S. can borrow to pay for its remaining bills.) The national debt, now at a historic high, is the buildup of its deficits over time.

Increasing the debt ceiling has an inverse effect on the country's reputation in the global markets. As such, it may lead to a downgrade of the credit rating of the U.S. while increasing the overall cost of its debt.

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.

Interest Payments Creating Pressure on Other Spending

As interest rates return to more typical levels from historically low levels and the debt grows, federal interest payments will increase rapidly. As interest takes up more of the budget, we will have less available to spend on programs.

Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.

What Are the Effects of a Debt Crisis? A debt crisis can lead to steep losses for banks, both domestic and international, potentially undermining the stability of financial systems in both the crisis-hit country and others. This can affect economic growth and create turmoil in global financial markets.