Brian Murphy, Staff
The United States is currently $31.4 trillion dollars in debt. This is a terrifyingly large number, but there is no reason to worry. The debt and deficit conversation are more political issues than economical.
Each year, the federal government is responsible for setting a budget. Simply, this budget is agreed upon and states where the government will be spending its money, and where the sources of it are. Since 1998, the government budget has not taken in more money than it spends (called a surplus). Yes, that means for the last 25 years, the United States government has been spending more money that it receives (a deficit), and the summation of these deficits is what is known as the debt.
When the government spends more than it takes in, it needs to borrow money to finance the extra spending. The US government does this through selling securities, commonly treasury bonds. These bonds can be purchased by anyone: citizens, businesses or foreign governments.
With the debt growing each year, there is no reason to panic. The United States has monetary sovereignty, or full control, over its currency. The US can print money to do anything it needs to finance. Think about the stimulus checks. The government did not tax you extra to fund this spending. The Federal Reserve simply decided it was going to fund the checks and printed more money to cover the costs. This too can happen to cover its debt. If the US government one day decided to pay off the debt, it could with the click of a button. All the Federal Reserve would have to do is increase the money, and transfer money to all of the debt holders. Additionally, the United States doesn’t even need to borrow money in the first place. The Federal Reserve could just decide to fund this money if it wants to.
The reason this is all possible is because the US is monetary sovereign. If the United States used the Euro, for example, they could not simply just increase the supply of Euros, since the US Government does not control the Euro. The debt would be a potential issue if this was the case.
So, why doesn’t the United States just pay off the debt? Simply, there is no reason to. Further, there is a potential for inflation if they were to do this. So, the United States continues to practice the same policy of borrowing.
The debt is a hot topic each year in Congress, but it is never a reason to panic. It is used for politics. Used to push agendas. The economics of debt is simple, and the United States is safe.