| Central Penn Business Journal
Why the national debt is a good thing
There are downsides to the roughly $14 trillion debt.
When the government produces rapid increases in both deficits and debt, there is less domestic capital and credit for the private sector. Government bonds compete with corporate bonds, which might increase interest rates for everyone. Besides, the interest on the debt is more than 6 percent of the budget. We need to decrease the government's interest payments on the debt that crowd out funding for other needed programs. The real issue is making the debt more manageable.
Let me tell you why government debt is good.
If you ever hear someone argue the government should operate like households or businesses that cannot spend more than the income they take in, please stop listening. Households and businesses do not function in so simple a fashion since most carry debt because have they access to credit to shore up expenses. Similar to a parent borrowing a student loan to pay for their child's higher education so they can be a more productive citizen or a company taking on a loan so it can be more efficient, the government borrows money to pay for the infrastructure, entitlements, research and development, and education programs that make citizens and businesses more productive in the long run. We have no choice but to maintain debt to ensure our domestic productivity.
The global economic crisis was due in large part to American financial irresponsibility, since Wall Street was unregulated and Washington was unwilling to exert any control over borrowing in domestic credit markets. And much of this debt is financed by BRIC (Brazil, Russia, India and China), which currently holds 40 percent of the world's gold and currency reserves. China alone finances about $2 trillion in American debt.
But these are the very reasons why the U.S. has to continue producing debt and maintaining a solid credit rating. If the government were to default on its debt obligations, the significance of the U.S. dollar as the world's preferred currency in financial transactions and trade exchanges would be threatened. It might give way to system of "special drawing rights" in which global transactions would take place in a basket of currencies with the dollar constrained by the euro, pound and yen. The consequences to American domestic prosperity and global leadership would be disastrous.
Maintaining the debt and keeping it in good credit rating is in America's interests.
How accurate are the people who make the claim that understanding the national debt is so simple?
Chris Dolan is an assistant professor of political science at Lebanon Valley College and the author of “Striking First,” “In War We Trust,” and “The Presidency and Economic Policy.”