Increasing National Debts Essay

Submitted By vns1229
Words: 2960
Pages: 12

Effects of increasing National Debt and ways to control it.
Since the past century, Americans people dug themselves into a big hole which is the National debt. National Debt is the total amount of money that United States treasury Department has borrowed and currently owes to the federal government creditors (Sylla). These creditors include state and foreign governments, corporations, Social Security, Medicare as well as the people of the country. According to Zfacts, current US national Debt is estimated to be $16.8 trillion and has been increasing at the rate of $3.86 billion per day since September 28, 2007. This means that every American owes $48,700.In order to really understand the impact of this number it is important to understand its history. In her article “the debt and deficit” author Sylla Richard describes the first credit that was ever given was issued in 1775 when congress issued $2 million loan to finance the war called Continentals. By the end of 1779 this number had increased to $241.6 million which resulted in worst inflation in US History. By the end of war in 1782, the continentals almost became valueless and re-evaluated debt amount was decreased to $27 million. But due to inflation and poverty that proceeded after the war, most states were unable to repay the loans as a result the Article of confederation grant congress an independent power to raise revenue through taxes. The collection of taxes did not help decrease the debts; instead by 1790 the overall US national debt was increased to $72.2 million (Sylla). Alexander Hamilton who was appointed as the first secretary of the state by congress submitted his first official report on national debt. In his report, he suggested congress to fund all of the foreign and domestic expenditures for the states. This would be performed by borrowing money from other foreign nations, thereby increasing the stock prices as well as restoring people faith in their government. In 1803 US government borrowed $11.25 million from foreign nations to finance the Louisiana Purchase, which doubled the size of the nation (Sylla). This was the first of many loans that US took from foreign nations for its personal gains. For the most part the national debt kept on increasing for the following decades. The reason for this is hypothesized to the high number of foreign and domestic wars that involved US. For example, The national debt tripled during war of 1812, it quadrupled after Mexican War, after civil war debt kept on increasing to 420%, after World war I it increased additional 21 times it’sprevious recorded amount and it continued to increase another 6 folds until the end of World War II (Phillips ). Thus during the span of 1812-1946, US national debt had increased from $11.7 million to $260 billion (Phillip). After world war II the debt was equal to 128% of the US Gross Domestic Product(GDP) which meant US owed more money than it had in its reserve. This percent decreased until 1980 when the national debt was 33% of the GDP(Wieczorek). The biggest increase in national debt ever recorded was from years 1985 to 1995 when the debt increased from 1 trillion to 3 trillion in a decade (Wieczorek). The reasons for the sudden hike in national debt are associated with the policies of Ronal Regan, that focused mainly on large increase in defense spending and unwillingness to cut spending on inflation (Phillips). From 1993-2003 the average national annual debt increase was estimated at $200,000 billion dollars/ year which was a decrease from the precious fiscal decade ($400 billion dollars) (Phillips). The reason for the decrease is hypothesized to the Clinton policies that promoted tax increases and decrease in government spending (Nordhaus). The reduction in the annual increase rate could also be hypothesized to the internet boom that occurred in the same decade (Nordhaus). According to the bureau of public department, United States treasury department it has been