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EgaoNoGenki's avatar

Is our National Debt like a ticking time-bomb? If so, what will cause the bomb to detonate, and what happens when it does?

Asked by EgaoNoGenki (1141 points ) March 11th, 2010

http://www.cracked.com/funny-4136-national-debt/

Unbelieveable that it’s been 172 years since our national debt was zero.

I know that one force or another will have to deal with this debt, whether it’s by repaying it, or another solution.

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16 Answers

davidbetterman's avatar

No biggie. We just nationalize all our assets and renege on all our debts

Poof! All gone.

noyesa's avatar

The United States government is a very reliable debtee. We pay off our debt with interest and we never default. People are generally always willing to lend us money, so deficit spending is always an option.

Unfortunately.

EgaoNoGenki's avatar

@noyesa If countries started to tell the US, “We will not loan out any more to you until you first pay us back the balance,” then what will happen?

Captain_Fantasy's avatar

Don’t we owe China truckloads of money?

noyesa's avatar

@EgaoNoGenki Point is they don’t do that because we’re good for it. We’ll pay our debt back one way or another.

VohuManah's avatar

The debt itself isn’t the problem; it certainly isn’t helpful because it strains the budget with interest payments, but several countries exist with much more debt (as a % of GDP) than us (pun intended). The bigger issue is the deficit. Plugging a massive hole like that won’t be easy, but once (if) we do that, we will be in relatively good fiscal health. The issue with future entitlements, will, however, require us to make some very serious and difficult decisions about taxes and spending.

ETpro's avatar

Yes, I think it would be fair to characterize our large debt as a ticking time bomb. Interest payments on that debt alone were $242 billion in 2009. So one problem it brings with it is that the interest payments eat up a large amount of money we could otherwise spend on useful things like repairing our crumbling bridges and highways.

We finance generation of additional money into the US money supply by selling interest-paying securities called Treasury Bills. The USA has had a vibrant, resilient economy and so T Bills have always been popular with long-term investors interested in a low-risk investment. So far, investors are still buying T-Bills when we need to raise more money to finance deficit spending. But if we get too deeply in debt, we will have to pay ever higher interest rates to attract buyers, and at some point, no rate will be enough because buyers will fear we are bankrupt and that we will be unable to make good on the treasury bills. That would force the US into national bankruptcy.

At the end of 2009. the national debt was 84.6% of the gross domestic product. That’s very high, but we’ve recovered from worse. In 1945 after deficit spending to fix the great depression and fight WWII, the national debt hit 120% of our Gross Domestic Product. We paid that debt down over the next 35 years with very high (70% and more) taxes on income over a high base amount. We can do that again. But we are paralyzed by the false claim that we can easily cut government spending enough to pay down the looming debt while cutting taxes for the rich even more.

In the past 30 years since Reagan introduced trickle-down economics and slashed taxes for the rich by more than 50%, the national debt has skyrocketed and the disparity between the amount of wealth owned by the top 1% and that owned by the other 99% has gotten far worse. Cutting government spending enough to even balance our current budget, much less pay down the staggering debt, would devastate the poor and middle class.

We won’t defuse the National Debt time bomb till most Americans understand these things, because fixing it is going to require iron political will.

talljasperman's avatar

When China Forecloses on Whatever the States used as Collateral

Rarebear's avatar

China can call in the debt. When we can’t pay, they can make us do whatever they want us to.

Coloma's avatar

Well…maybe then China will take California and leave Taiwan alone!!!!

HungryGuy's avatar

I think that exact thing happened to one other continent-spanning empire not too long ago…

EgaoNoGenki's avatar

@HungryGuy Apparently the USSR was 1st, the USA may be 2nd, and Australia 3rd. Are there other continent-spanning countries?

HungryGuy's avatar

@EgaoNoGenki – Well, there’s Canada—they’re sort’a continent-wide, and might be considered an empire since it comprises several provinces. Also, India considers itself its own sub-continent, and could be considered an empire since it comprises many states. And for a long time, India had a tightly closed and fully self-contained economy/industry, so they may be somewhat insulated from the worldwide recession, but I don’t think that’s as true as it was a decade or so ago. Are there any others we’ve missed?

Coloma's avatar

That tree house in costa rica is looking better & better all the time. lol

ItsAHabit's avatar

Both President Kennedy and President Reagan lowered taxes and stimulated productivity and the economy. After they reduced taxes, total tax revenues increased. Raising taxes will not reduce the national debt but increase it.

ETpro's avatar

@ItsAHabit The Clinton years disproved the shape of the Laffer Curve as do the tax to revenue figures of all the previous administrations. But good lord man, even Laffer, while he doesn’t bother to even draw a bell curve, does show that there is a sweet spot where the correct tax produces the maximum revenue. Go higher of lower and revenue drops off. You would have to be insane to believe that is not so. If lowering taxes ALWAYS increases revenue, let’s just make the tax rate a negative 1000%, and have the government cut a check to each taxpayer of 10 times their annual income. That’s nonsense. It would produce a deficit in one year greater than the current National Debt!

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