To start this assignment, please do a little research on the current state of th
ID: 1223346 • Letter: T
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To start this assignment, please do a little research on the current state of the national debt. one good source is the website www.usdebtclock.org. Explore the website, making sure to scroll over the heading to see the definitions of the various indicators. When you scroll over a heading, look in the center of the page - the part that says US Debt Clock.org changes to the definition of the heading you scrolled over. Click on the links for the "state debt clocks", "world debt clocks", and the "debt clock time machine" to explore the debt in a more local and a more global context. The debt clock time machine will give you a sense of how the debt has evolved over time. What are some of the things that stand out to you? Identify at least 3 of the indicators that you believe are important. Now that you have a little background on it, please do a little more investigating on the national debt to address at least 3 of the following questions: What indicators did you select and why are they important to you or the country? What trends have you identified with the indicators? How are future generations affected by the national debt? Based on your findings, what was the most surprising/interesting item you learned about our national debt? Is our national debt a potential problem or nothing to worry about? Which item is of more concern: the level of the national debt or the level of unfunded liabilities? Post your response to step #4 in the discussion board. After making your original post, please make 2 additional posts in response to your classmates. Your 3 posts should be made on at least 2 different days. Please let me know if you have any questions...Explanation / Answer
3) With respect to evolution of debt over time, the following observations have been identified:
4) a. That national debt of the United States is the amount owed by the federal government of the United States. The Debt to GDP ratio of U.S. shows a rising trend from 90.2 to 94.3 from 2011 to 2012 (source: World bank Data). It shows the level of indebtness of a country related to the level of economic activity. A high Debt to GDP ratio shows that an economy that produces and sells goods and services is not able to sufficiently pay bac debts without incuring further debts.
The Interest to GDP ratio shows how burdensome for the country interests are. It can also be interpreted as the country’s possibilities to face unproductive expenditures. It was at its peak in 1991 at 3.149% and it has progressively declined to 1.24% in 2015.
The ratio of external debt to exports measures the foreign debt level as a proportion of exports of goods and services. It shows the debt burden level over exports or the capability of acquiring currencies. There is a steady increase in this ratio from 5.18% in 2003 to 6.51% in 2009. This indicates that U.S. is unable to finance its foreign debt with exports.
b) Public debt creates a burden on the future generations. The current generation gets the benefit of additional spending, or a tax cut, but future generations pay the cost in terms of finding the money to pay the interest on the debt. Creating additional debt has two negative consequences aside from any intergenerational equity concerns. First, increasing taxes to pay the interest adds to the scale of tax distortions in the economy. Second, it seems likely that additional government debt will to some extent crowd out investment in productive capital, and this is a cost if, as also seems likely, we currently have less than the optimum amount of productive capital.
c) The most suprising feature about U.S. natioanl debt is that even with increasing GDP and export earnings, during 2011, U.S. debt surpassed 100 percent of GDP for the first time ever.
d) Currently, U.S. has a debt of approximately $19 trillion which can slow down the economy and may lead to a debt crisis. At any point, debt holders could demand larger interest payments to compensate for what they perceive as an increasing risk they won't be repaid. When this happens, the United States will have to pay exorbitant amounts just for the interest.
e) The level of unfunded liabilities is a greater cause of concern than the national debt level of the nation. The unfunded liabilities is the difference between the net present value of expected future government spending and the net present value of projected future tax revenue, particularly those associated with Social Security and Medicare. These are catastrophic for the future tax payers and the economic growth. In the future it would lead to unsustainable economic costs.
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