National Debt

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Definition of National Debt:

The national debt is the balance a government owes on money borrowed from individuals, companies, and other governments.

Detailed Explanation:

Most countries borrow money to finance some of their needs. The national debt, also referred to as public debt or government debt, is the government’s total indebtedness. The national debt equals the accumulation of budget deficits. When there is a deficit, the balance is added to the national debt. Conversely, a surplus is subtracted from the national debt. 

The graph below illustrates the alarming increase in the national debt since 1993. Visit the USA Debt Clock to see the current national debt in the United States. 

To adjust for inflation the graph below is in 2009 dollars.

One reason the national debt has increased is that the population has increased. Has the debt grown per person? You bet it has! The graph below shows how much the national debt has grown on a per capita basis. In 2018, it is estimated that every person’s share of the debt exceeds $64,000. 

The US Congress establishes a debt limit, which sets the maximum the US government is authorized to borrow to meet its existing obligations. (US Treasury) As recently as 2011 and 2013 the debt ceiling was breached, forcing the Treasury to take “extraordinary measures” to avoid defaulting on the country’s obligations. Many government services were suspended until an agreement was reached. If the debt ceiling had not been increased, the Treasury may have cut many payments the public depends on including Social Security. Some leaders even mentioned defaulting on the debt, which sent shock waves throughout the financial world. The US credit rating was downgraded for the first time in US history. Shortly thereafter, the Dow Jones Industrial Average plummeted 635 points. Eventually, an agreement was reached to suspend the debt limit until President Obama left office. 

Dig Deeper With These Free Lessons:

The Federal Budget and Managing The National Debt
Fiscal Policy – Managing an Economy by Taxing and Spending
Monetary Policy – The Power of an Interest Rate

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