Description
https://www.youtube.com/watch?v=t2RaWWW0eyE
Explanation & Answer
You
need to stop thinking about the debt as household debt. Debt to a
nation and debt in your personal finances aren't a 1:1 relationship.
The United States has been in debt pretty much every year since its
creation. That's the way it operates. The nation is meant to have some
level of debt. Normally we'd measure this debt as a percentage of GDP
to account for inflation when comparing just how much debt we're in
(since due to inflation the debt is always going up in #'s every year
but it doesn't mean we're in more debt than we were before adjusted for
inflation.)
Point one is this isn't even historically anywhere near the most debt
we've ran up when the numbers are adjusted as a percentage of GDP. We
were in MUCH more debt at the end of WW2, the Civil War, and after the
Louisiana purchase for example. However after those periods we had some
of the best economic periods in US History so a high debt doesn't mean
the country is doomed seeing as the last few periods of massive debts we
had much prosperity immediately afterwards.
The other thing to think about with the debt is we're not taking a loan
from a bank. We issue debt through the sale of govt bonds. We sell
these bonds to just about everybody including you and me for really low
interest rates. Right now the interest rates on a bond is ~1-2% a very
very small return. Why would people buy them? Because they're seen as
the safest investment you can make in that people are very confident the
US govt will one day pay them back. This is why there was a real
problem during the debt ceiling debate because it was basically a debate
as to whether we should pay US Bond holders. What would happen if we
didn't pay them? Basically it would now be seen as much much riskier to
buy govt bonds so there would be less and less demand for them meaning
the govt would have to raise the interest rate on the bonds to get
anybody to agree to buy them. The more risk you take the higher returns
you'd want to see to make that investment.
Now
the reason there's no risk on us not being able to pay back the bonds is
because the US govt created the money to begin with and if they wanted
to they could simply create more of it or raise taxes to pay the amount
it needs(big difference with your personal finances you can't just print
money). Both have drawbacks but both are feasible. The govt could
simply print 16 trillion dollars tomorrow and pay off its debt if it
wanted to. Why doesn't it do this? Because if you print money you have
to deal with inflation (a tax on anybody who has US Dollars vs other
currencies). The United states has more purchasing power if it doesn't
print the money which is why it borrows the money rather than printing
it through issuing bonds, to not have to deal with the inflation
problems.
Basically the choice is borrow 16 trillion dollars at a 1% interest rate
($16b/yr interest) vs printing it (USD * x% inflation) vs taxing it
from citizens (less spending by consumers would contract economy).
Right now the govt has decided borrowing is the best way forward and I
agree with them