United States National Debt and Macroeconomics
ECON 1002 - Introduction to Macroeconomics
University of Cincinnati
January 14, 2024
Introduction
The national debt of the United States is one of the most known
economic phenomena in the world. It is a regular topic in the elections
agenda, it is a common cause of fear among economists, and it is also
an extremely contradictory financial issue. The US national debt is
both an alarming and stabilizing factor. It manages to be a source of
threat and a sign of stability at the same time. Understanding what
makes the national debt of the United States so controversial is
essential in ascertaining its relation to macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
National Debt within the Context of Macroeconomics
Before delving into the specifics of the US financial policy, it is
important to know how much influence the debt can exert on the
economy. When economists talk about macroeconomics, they refer to
the variety of factors influencing the performance of the entire
economy (Mügge, 2016). It should be noted that the scope of this field
is such broad that it does not incorporate economic issues exclusively.
Decision-making on the governmental level is done based on a
combination of factors. Naturally, some of them include
macroeconomic indicators, such as gross domestic product,
unemployment rate, inflation, and other statistical data concerning the
state of the economy.
However, there are also a plethora of other spheres, which are not
economic but nonetheless important. Political affairs, social issues,
international relations are all considered when the authorities decide
their next steps. They become especially relevant when decision-
making concerns countries’ debts. The reason for this is that once the
budget deficit is no longer viewed through the prism of numbers, it
becomes a political issue. (Slater, 2018). Faced with the problem of
the lack of resources, the government is forced to ask other states for
loans. This decision temporarily solves the financial deficit, but it also
backfires in a negative way.
The most vital form of power any country has is its sovereignty. As
long as the government is free to make its own decisions without
relying on other states or organizations, the nation remains
independent. Yet, if a country becomes indebted to another state, its
sovereignty is compromised. This is the real danger of using the
national debt as a solution to the lack of money – the government no
longer decides how it spends its resources on its own (Slater, 2018).
Any indebted country also gives its loaners leverage points in
negotiations. Therefore, national debt seizes to be a purely economic
phenomenon and begins to influence macroeconomics politically.
The Uniqueness of the US National Debt
Overall, it is expected that a country with debts has severe problems
with its sovereignty and authority in the international arena. Yet, this
is not the case with the United States. America has an unprecedented
level of national debt – over 27 billion dollars (US debt clock, n.d.).
At the same time, it is the leading nation of the Group of Seven,
Group of Twenty, Organization for Economic Cooperation and
Development, and the world’s largest economy by nominal GDP (The
World Bank, n.d.). This raises the question of how a single entity can
have the world’s biggest debt and be a hegemon simultaneously.
First, the problem of the US national debt is not new. The United
States has had a budget deficit since Ronald Reagan’s presidency,
which makes more than forty years (Furman & Summers, 2019).
Within this time frame, generations have grown in a country that lives
in constant debt. Furthermore, not only did the debt not subside, but it
has also been growing exponentially. Yet, the US continues to spend
extraordinary resources on all spheres of life, ranging from military
defense to social policies. The subsequent implication is that the
national debt does not necessarily incapacitate the government.
In order to understand how the United States manages to continuously
increase its debt without any apparent repercussions, it is necessary to
realize how money is created. Every country has a superior institution
responsible for the printing of its national currency – a central bank. In
the case of the US, this role is executed by the Federal Reserve.
Money is the financial equivalent of goods and services (Focardi,
2018). The excessive number of commodities not backed by the
sufficient amount of financial resources in the economy overvalues
money. The reverse is also true – if there is too much of it, money is
devalued, which leads to inflation.
Implications of the National Debt
In general, inflation manifests in the rise of prices, while population
incomes remain the same. However, in the case of the US, this is not
such an urgent problem (Furman & Summers, 2019). Inflation is
controlled, while it should have skyrocketed long ago, like in Spain,
Greece, and other economies with substantial national debts (Conerly,
2020). There conventional solution to inflation is cutting expenses and
raising taxes. This is a dangerous policy because the population will
immediately feel the consequences of the budget deficit and may start
rioting. It is also not the decision the US Government chooses because
its citizens are too attached to complex social programs such as
Medicaid and Medicare.
The US response is different – it uses the position of the dollar as the
world’s reserve currency. First, many countries are poorer than the
United States, which makes their currencies cheaper compared to
dollar. A special quality that the US dollar has is that it is a
trustworthy investment – those who loan money to the US will always
receive interest. However, these countries are not actually buying
dollars – they are purchasing the American promise to pay back the
debt (Furman & Summers, 2019). These financial obligations are
called US bonds, which are issued by the US Department of
Treasuries.
In essence, America loans money into existence because it does not
exist on paper but in the form of interest and debt. This way, the
Federal Reserve creates new money and deposits them in the
American banks. However, the US has to export dollars to prevent
inflation (Furman & Summers, 2019). One way of ensuring this is
moving the production from the Unites States territory to poorer
countries. Another method is lending financial assistance to
governments which have suffered from war, poverty, or social strife.
As a result, the US dollar bubble will continue to increase as long as
the dollar remains in demand and is exported out of the US.
Conclusion
Altogether, it should be evident that common macroeconomic rules do
not always apply to the United States. It has the largest national debt
in the world, yet the economy continues to grow, and the government
expenditures increase. The reason for the apparent American
invulnerability lies in the dollar, which is created by the continuous
cycle of loans. The American currency is exported into other
economies, which prevents inflation in the United States. The growing
bubble may constitute a future threat, yet it has provided the US with
growth for over forty years. Overall, the demand for the dollar
explains the growth of the United States national debt and its unique
macroeconomics.
References
Conerly, B. (2020).@Federal debt a danger to business, but not this
year . @Forbes. Web.
Focardi, M. F. (2018).@Money: What it is, how it’s created, who gets it,
and why it matters. Routledge.
Furman, J., & Summers, L. H. (2019). Who’s afraid of budget deficits:
How Washington should end its debt obsession.@Foreign Affairs,@98,
82.
Mügge, D. (2016). Studying macroeconomic indicators as powerful
ideas.@Journal of European Public Policy,@23(3), 410-427. Web.
Slater, M. (2018).@The national debt: A short history. Oxford
University Press.
US debt clock . @(n.d.). Web.
The World Bank (n.d.).@GDP (current US$) . @Web.
