The US National Debt Has Crossed the $31T Mark for the First Time in History
The US government has been borrowing heavily in recent months to offset the impact of the coronavirus pandemic, with stimulus measures and other spending pushing the debt level ever higher. According to MoneyTransfers.com, the US national debt has crossed the $31T mark for the first time in history. The rise of debts has led to serious questions on fiscal sustainability.
MoneyTransfers CEO Jonathan Merry said:
This is a very worrying development. The US government is borrowing heavily to try and offset the economic impact of the pandemic, but this is not sustainable in the long-term. With interest rates set to rise, the burden of servicing this debt will become increasingly expensive, and it is not clear how the government will be able to meet these obligations.MoneyTransfers CEO Jonathan Merry
Merry added, “it is imperative that the US government takes steps to get its finances in order, or else the country risks a debt crisis. This would have serious implications for the global economy, as the US is the world’s largest economy.”
Concerns on the Economy and National Budget
The rising debts in the US would adversely affect America’s economy and Federal budget. The government will have to spend more on debt servicing as the national debt rises. The increased expenditure on debt servicing will reduce available resources for other projects like infrastructure development and social welfare programs.
Continuous borrowing by the federal government will affect the borrowing cost for the private sector. The private sector will have to pay higher rates to borrow money from the financial markets. The increased borrowing cost will reduce investments in the economy and affect economic growth.
What Is The Way Forward?
The solution to America’s ballooning debt is not straightforward. However, some experts have proposed policies to help the government get back on track.
Firstly, the government should commit to reducing the deficit gradually. Reducing the deficit will require difficult choices on spending and taxes. Also, it would need a broad-based consensus among the political class.
Secondly, the US must grow its economy faster to reduce the debt burden. The country can grow its economy by implementing pro-growth policies. Such policies include reducing regulations, reforming the tax code, and investing in infrastructure.
Thirdly, the government should take measures to control entitlement spending. Entitlement programs like Social Security and Medicare are the primary drivers of US debt. Thus, any attempt to control the national debt would require entitlement reform.
Fourthly, the government should consider privatizing some of its assets. The move will help to unlock value and reduce the debt burden.
Lastly, the US should consider issuing long-term bonds to foreign investors. The measure will help to reduce the dependence on domestic investors and improve the US debt profile.