Damages of overflowing U.S. debt to the global economy and how can it be dealt with

US debt

The debt in the United States had already reached a tipping point due to its several households. From a household financial well-being, it became a threat to household financial instability. How does it interact with the income of Americans and what are its effects on the global economy?

 

Brief history

Ever since the economy of the U.S. has been established, debts was already a huge part of its operations. As early as 1789, the government continually had a fluctuating public debt and is only often expressed as a ratio to GDP.

The country only saw its debts trend down when economic markets met with their success in the 1990’s. The public normally adapts the issuance of debt from the public policy perspective as it is carried by the federal government of the U.S.

 

How did it get so big?

As of February 13, 2018, the U.S. national debt exceeded more than $20 trillion, and the issue regarding its effect to the economy has been brought up again with the national intelligence perceiving it as a risk to security. Here are some of the main events that influenced their debts movement and where is it currently headed.

The United States began the recession in August 1981 with President Ronald Reagan signing major tax reductions into law. The obvious downside of this movement was less money flows into the U.S. government. During the first four years of the 1981 act, a U.S. Treasury paper suggested that it reduced revenue by approximately $118 billion per year. Fast forward to 2010, former president Barack Obama signed a bill that would extend tax cuts by two years and made almost all of them permanent in 2012.

 

Cost of wars

The U.S. spent a lot of money on the wars in Afghanistan and Iraq. Center on Budget and Policy Priorities’ consultant Kathy Ruffing said the two wars actually account for as much as $2 trillion of the debt. Deficits exceeded to $1 trillion when the collapse of U.S. housing worsened the ballooning of budget deficits.

 

Dollar to the rescue

The dollar has an important role in the global economy as the nation can always rely on its savings to finance deficits and sell bonds. This is possible because foreign countries preserve their export earnings using the greenback. In times of global uncertainties, the U.S. government and investors look in Treasuries as a safe haven. The U.S. gained advantage from a big edge because it can always borrow at good rates. A strong U.S. dollar might save the global economy because it can shoulder a massive amount of debt compared to other countries.

Rising global competition and foreign labor will result in a relative strength that will last for a long-term and coupled with a firm dollar, the U.S. economy will meet its success.

National debt in the U.S. is highly expected to grow more than 87 percent for the next ten years and is seen to balloon even more after 2023. Several economists have already confirmed that high levels of federal debt will put the country at risk of damaging economic repercussions, and it includes a financial crisis driven by overflowing debt.