First, let us understand what is debt and how does it affect a country?
The national debt is the public and intragovernmental debt owed by the federal government. It’s also called sovereign debt, country debt, or government debt.
It consists of two types of debt. The first is debt held by the public. The government owes this to buyers of its bonds. Those buyers are the country’s citizens, international investors, and foreign governments.
Politicians and their voters become addicted to deficit spending. It’s called expansionary fiscal policy. The government expands the money supply in the economy. It uses budgetary tools to either increase spending or cut taxes. That provides consumers and businesses with more money to spend. It boosts economic growth over the short-term.3
Here’s how it works. The federal government pays for things like defense equipment, health care, and construction. It contracts with private firms who then hire new employees. They spend their government-subsidized wages on gasoline, groceries, and new clothes. That boosts the economy. The same effect occurs with the employees the federal government hires directly.
The US DEBT
As of May 1, 2020, federal debt held by the public was $19.05 trillion and intragovernmental holdings were $5.9 trillion, for a total national debt of $24.95 trillion.
AS of May 1, 2020
Federal Debt Held by public = $19.05 Trillion USD
Intragovernmental Holdings = $5.9 Trllion USD
Total Debt = $24.95 Trillion USD
Debt Held by public = 79.2% of GDP
UNITED STATES HAS THE LARGEST EXTERNAL DEBT IN THE WHOLE WORLD
COVID-19 and US DEBT
Due to the coronavirus pandemic, Congress and President Trump enacted the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 18, 2020. The Committee for a Responsible Federal Budget estimated that the budget deficit for the fiscal year 2020 would increase to a record $3.8 trillion, or 18.7% GDP
THINGS TO LEARN
DOLLAR DEVALUATION IN LONG RUN
Over the long term, debt holders could demand larger interest payments. This is because the debt-to-GDP ratio increases and they’d want compensation for an increased risk they won’t be repaid. Diminished demand for U.S. Treasurys would further increase interest rates and that would slow the economy.
Lower demand for Treasurys also puts downward pressure on the dollar. The dollar’s value is tied to the value of Treasury Securities. As the dollar declines, foreign holders get paid back in a currency that is worthless. That further decreases demand and many of these foreign holders of U.S. debt are more likely to invest in their own countries.
At that point, the United States would have to pay exorbitant amounts in interest. The amount of federal spending today points to high-interest payments on the debt in the near future.
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Dollar = Ties with Treasure Securities
More Debt = More Interest to pay to the debtor
More Interest = Downward pressure in Treasury securities=More downward pressure to Dollar
A decline in bonds value = Holder of U.S. Bond will invest in their own countries and SELL U.S. Bond
At Last U.S Debt Crisis will create huge SELLING PRESSURE IN DOLLAR
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