Don’t be fooled: The US is facing a national debt crisis

The US National Debt is the sum of all outstanding debt owed by the US Federal Government. The debt is an accumulation of federal budget deficits. Congress usually raises the national debt ceiling to prevent the negative consequences of a debt default.  In the short run, the economy and voters benefit from deficit spending. America’s debt is the largest in the world for a single country. As of December 17th, 2015 the national debt is $ 18,796 billion equals to 105% of GDP. So the debt is more than the US produces in a whole year. That normally tells investors that the country might have problems repaying the debt. Furthermore a study of Reinhart and Rogoff (1) shows that high public debt (> 90% GDP) stifle economic growth. This is a new and worrying occurrence for the US.

 

In this paper we explain that the Fed made two camouflages (ZIRP – Zero Interest Rate Policy and printing money) so that the US Federal Government can keep up the appearances of being on a strong fiscal path for the majority of the population. Without the Fed camouflages the US Government would probably be comparable with Greece. The federal budget and the US National Debt are not under control. The Fed won some time through their camouflages . The higher US debt and low interest rules out (further) loans from other countries and probably intra governmental holdings. A default of the Federal Government would dramatically affect the economy.

 

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