The causes, potentials consequences, and reforming of U.S.A national debt
By YOU LI, an international student from Emporia state University
For my personal opinion, there were several major causes of U.S.A huge amount of national debt. First two were high marketing return rate and low savings. In the latest decades before Mortgage Crisis, U.S.A had been holding the highest marketing return rate in the world, which created the most active free domestic market in the world. The incentive for investment was so high that most of the U.S.A citizens were involved in some sorts of investment, such as buying stock, setting up companies, or investing on mutual funds. The U.S.A government were willing to borrows funds from foreign countries and reimburse those money to the citizens by tax return and tax reduction, so that those citizens would be very likely to invest the money to markets and generate more money. Under this assumption, even with lower average tax rate overall, the government were supposed to gain more tax collection over a long period of time by rising up the basis of taxing, which is GDP, while it was improving the U.S.A people’s standard of living. In other hand, the optimistic views of U.S.A economy made people get used to “spend before it is earned,” which is consuming by loaning money. U.S.A has very low saving rate in the world and it did not become a problem for a long time. Besides, U.S.A had the largest government spending in the world. Taking military expense as an example, U.S.A government has an average of 400 billion dollars in annual military budget, which is far more than any other country in the world. Large government spending is also a cause of huge amount of national debt.
The potential consequence of the huge national debt is the reduction of standard of living for the current and next young generation. Due to the astronomic number of the amount of U.S national debt and current economic regression from the chain effect of Mortgage Crisis, U.S.A is not able to pay those debts back in a short or even mediate period of time. Then the huge interest payment will be a big headache to U.S Government. People’s low saving habit will change during a time due to the lower income level, but significantly in a short time. U.S.A needs more funds to stimuli the economy and maintain government service so that it has to continue borrowing in certain degree. All those interest payments will come from taxes. U.S.A had a baby booming after WW2, which led a population expansion. The baby booming did not last forever so that the population of the generation after was significantly less. Now, those people who were born in the booming are or are about to retire, then the securities and pensions will rely on the current working generation’s tax. The huge amount of interest payment, the obligation to support the retired people, the tough employment environment, all of above will possibly lower the standard of living of those U.S.A citizens who are bout my age, through their entire life.
My suggestion of reforming U.S.A debt is to save money on unnecessary government spending, educate people about the essence of saving, and right way of stimulating the economy. Some of that government over spending should be reduced, such as military expenses. U.S.A already got the most powerful army in the world that may be too expensive to maintain. In such a globalized world, the chance of overall war among big countries is little. The major threat of national defense for all major countries becomes terrorism. Those unconventional wars require specific high oriented arms and strategy rather than just high tech missiles. It may be OK to cut back some military expenses and focus on more efficient strategy or light arms development. To increase the saving rate of people is a long term method to solve the huge national debt issue. People should have an idea that heaven may not last forever and reserve more funds for them and learn to spend a little bit more wisely. One way to spend money more wisely is to pay more attention to their credit card purchase and limited the impulse of purchasing when the thought that “I can just swipe the card and pay it back later” flashes. According to current situation, U.S.A government may still have to fund money through national debt, but stimulate the economy more effectively and efficiently will reduce the total amount of additional debt and help to solve the huge debt headache.