- Free Essays, Term Papers & Book Notes

Why the United States’ Federal Government Is in Debt?

Page 1 of 6

American Government

Student’s Name:

Instructor’s Name:



 Using multiple sources please provide an explanation for why the United States’ Federal Government is in debt.

The US macroeconomic policies used as early as the 1980s and the great recession in mid-2008 are primarily responsible for the mounting federal debt. In terms of macroeconomics critics argue that President Bush replicated President Reagan’s performance while still in office and instead added on to the debt.  With a military budget of $1.35 trillion which was way more compared to the cold war, the impact of this was that the government budget went up from a surplus of $387 billion in the previous years to a deficit in 2004 of over $412 billion. In 1981 federal outlays rose suddenly due to the tax cut. It was considered one of the biggest in US history. As a result reduced revenue growth occurred. In the same year federal debt rose from $908 billion (33% of the GDP) to a total of $2.6 trillion after eight years (52% of the GDP).

Great recession in 2008 caused by falling home prices, tight credit, and investment bank failures and subprime mortgage crisis caused a deep and long down turn. This had never occurred since the great depression. As counter measure the government guaranteed over $10 million dollars in 2009 to help resolve the situation. The attempt however made the federal government incur further debt. Medicare and Medicaid expenditure costs are also a contributing factor as both projects exceeded the set budgetary allocation. Due to this inflation surpassed by a wide margin. Mechanisms put in place to support the social security system end up straining the expenditure. Present day workers savings are used are used as pay offs for beneficiaries. Cost of this payments have become more expensive due to the high number of retirees.

 Address which explanations have the strongest arguments and which have the weakest arguments and why.

Strong arguments are presented by the first two key primary reasons that is macroeconomic policies and the great recession of 2008. Both of this arguments are substantial as there is a huge impact on the economy if they are not addressed. For instance, if not addressed and it happens again it will mean the government will have to raise the interest rates to be paid by the public. Higher interest rates and debt levels will mean reduced salaries as most of it will be slashed to pay the rates leading to fewer jobs. Increased rates of interest will affect borrowing making it difficult to access loans for corporations, mortgages and individuals. This will also have a global impact as it will be riskier to work with the US in the view of other countries globally. Making it hard to attract investors due to the lack of confidence.

Issues dealing with social security, Medicare and Medicaid require funding mostly from sources such as tax or borrowing. All this are mandatory in the constitution and cannot be overlooked. This thus cannot be termed as a strong argument as it is mandatory for tax cuts to sustain the health care fund and social security. This obligations are important but are not however considered when mentioning the national debt as they are funded internally by the government.

Of the arguments that have been presented, which do you prefer and why?  

The great recession of 2008 is preferable critical especially to the US government, this especially due to the danger of foreign governments using the increasing debt as leverage over US stand on foreign policies. If China for instance uses this leverage and decides to dump its holdings of the treasury debts it would lead to the collapse of the dollar on the foreign exchange market and increased interest rates.

What are other possible factors that might influence our national debt, but are not addressed in your perspective?

Foreign debt will not only create financial problems but also geopolitical challenges. For example as a result there would be reduced international influence, poor standards of living and constraints in policy making. Most of the tax payer’s money will go into clearing the debt through interest payments. This will further lead into poor living conditions as most of the earnings will go into paying dividends on investment and paying foreign investors for their loans.

Based on your beliefs about the national debt what course of action do you think should be taken to decrease the debt?

National debt can only be reduced by reversing how the budget is allocated. In allocating the budget one third of it is discretionary while the remaining part of it is mandatory. Mandatory part of the spending has increased over the years. It is challenging to control this part of the budget as it is key in funding programs. This means that individuals get the benefits without necessarily being approved by congress. Discretionary spending on the hand can be altered by congress since it mainly involves defense and non-defense type of spending. Agencies are allocated the funds meaning congress can alter the amount that will be allocated to each. By setting tax rates and cutting entitlement programs should help solve the problem of debt in the United States.

Download as (for upgraded members)  txt (7.9 Kb)   pdf (79.8 Kb)   docx (12.2 Kb)  
Continue for 5 more pages »