The National Debt Explained

By Investopedia | Updated November 30, 2016 — 11:03 AM EST

The national debt level of the United States has been a significant subject of controversy. Given that four consecutive years of $1 trillion budget deficits (2009-2012) has pushed the national debt to over 100% of gross domestic product (GDP), it is easy to understand why many people are starting to pay close attention to this issue. Unfortunately, the manner in which the debt level is conveyed to the general public is usually very obscure. Couple this problem with the fact that many people do not understand how the national debt level affects their daily life, and you have a centerpiece for discussion — and confusion.

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Conclusion

As the national debt continues to grow, the question remains: Is it OK to run a deficit like we have for many years, or do we need to balance the budget? Just like any average American household, overspending can carry on for extended periods by rolling over debt and borrowing more and more money in what seems like a never-ending game of chasing our tail. The government has become an expert at this process. Yet without its spending, some would say our economy could be in much worse shape – keeping the Keynesian theories alive that it’s our government’s responsibility to step in when needed. When debt is used appropriately, it can be used to foster the long-term growth and prosperity. But high levels of national debt for prolonged periods of time has a severe impact on the overall economy. As the U.S.national debt clock keeps ticking:

• Higher interest will have to be paid on government debt.
• Higher debt levels will mean limited jobs and lower salaries.
• Increases in interest rates will cause borrowing to becoming difficult at all levels, including those for individuals/corporations/mortgages.
• Operating in the U.S. will be viewed as riskier in the eyes of the world, making it difficult for continued foreign investor confidence and investments in the U.S.
• The risk of the country defaulting on its own debt obligation may lead to further downgrades