The U.S. National Debt and Economic Stability (Essay Sample)

The U.S. National Debt and Economic Stability
Any nation needs funds to operationalize its plans and projects. These funds are generated from various sources such as taxes, licenses, fines, and so on. However, the financial needs of a nation can exceed the amount of revenue collected making it difficult for a government to operate. This leaves the government with no choice, but to seek funds using other means like borrowing. The entire sum of borrowed capital constitutes a national debt. Although it is one of the largest economies in the world, the U.S. has a chilling debt of more than $16.7 trillion due to massive borrowing (Hill 18). According to the report released by the U.S. Department of treasury, these huge figures indicate that the country has reached its statutory limit giving an indication of a looming debt crisis and unstable economy.
The US debt ceiling
The debt ceiling (the highest amount of debt the government can take on) in the US was created with an aim of keeping the president in check with regards to control of the country’s finances. Thus, this made it easier to control the amount of bonds that are issued. The mandate is bestowed upon the Congress which has the constitutional obligation of overseeing all financial issues on behalf of the federal government. It has been a usual phenomenon of the ceiling by the Congress whenever the United States risks hitting the limit (Buttsworth 26). For instance, in 2011, the limit was at the $14.3 trillion mark towards the end of July. Hitting the limit means that the US government will be at risk of not making its interest payments to the bond holders. This will imply that the federal government will be in a state of default and, therefore, forced to lower its credit rating. This will eventually raise the cost of its debt.
The shutdown
The current debt crisis of the United States gives any early alert of an impending shutdown in government operations. The bondholders and workers have become completely worried about what would become of them when the government hits the $16.7 limit of its debts. This heightened risk in the financial sector is as a result of the law that forbids the government from borrowing once it has hit the cap. The government has many obligations that it will not be able to rely on the incoming revenue and liquid cash only. The planners are likely to cut government spending an act that will completely destabilize the economy (Burger 46).
From the forecast, hitting the debt ceiling would mean that ushering in a period of recession has started. The civil servants are at risk of losing their jobs or suffering delayed payments. Millions of unemployed Americans are the most affected lot. The reduction in government expenditure has reduced the social security fund which provides the unemployment benefits. The financial crisis is expected to worsen even further as the U.S. debt is normally used as collateral in financial deals by businesses and individuals (Hill 21). Already, the financial markets are in the fears of the scarcity of credit as dealers are considering that it is no longer worth holding. Some analysts have estimated that the cuts in spending and the worsening credit value will lead to the three million jobs lose over the following subsequent years as of 2013 and, also, increase the unemployment rate in the United States to nearly 9 percent.
China and the U.S. debt
Like many other foreign governments, the Chinese government in terms of treasury bills, bonds, and notes. China is the biggest foreign holder of the U.S. debt owning approximately $1.2 trillion. The China’s ownership of the U.S. debt is much higher than the ownership of American citizens that hold only about $ 0.9 trillion dollars. In recent years, the huge investment in bonds in the U.S by the Chinese government have elicited mixed reactions as critics argue that the behavior of China in relation to the American bond market is quite significant to an extent that it can control ...