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National Finances

Updated on November 1, 2016

Refuting the "problem" of the National Debt

Everyone knows that having large amounts of debt is bad. If one is not careful, they may be drowned in the results of their own poor choices. Unfortunately, while this logic may be perfectly sound within the realm of personal finance, it hardly can be seen as holding much water where such a large and complex entity as the Federal government is concerned. Many times have I heard people name the debt as one of their foremost concerns when it comes to our nation. However, the idea that our government is too deep in debt is simply absurd when all the numerous factors are considered.

Let us first look at the size of our nations debt. At the time of this writing, the debt is currently on the order of 18 billion dollars. This number is often thrown about, and yet a key point is left out of the equation. While the United States owes the world a significant sum of money, the rest of the world owes us almost as much (over 15 trillion dollars as of 2011, I was unable to obtain more recent statistics). An example of this is China, who we owe 1.3 billion dollars, and who owes us 1.3 billion dollars in return. Should China call in our debts, we could call in theirs in order to pay off the aforesaid debt, creating an environment of mutually assured destruction. In addition, the United States easily has the ability to pay off its debt. In on and offshore oil and gas resources aloe, the United States holds over 100 trillion dollars in assets, which could be sold off to pay off the debt if it was ever called. This is similar to how our debt was payed off before, under the Jackson administration. Jackson sold large amounts of land, with the end goal of paying off the debt. However, this is not even necessary at this point. In fact, the paying off of the debt would lead to massive global financial collapse. Our global financial system is built upon treasury bonds, which are seen as one of the most stable investments one can make. If the debt was a serious issue, why then do public and private financial entities still continue to have faith in their stability? Now, if the debt were payed off, all of the worlds treasury bonds would disappear. This would not bode well for the global economy. Foreign bodies are not the only holders of United States debt, with our own federal government owing a significant portion of money to itself (by borrowing money from the Social Security fund, among other sources). If the United States somehow failed to make debt payments, it would be withholding money that it owes itself. As such, it is doubtful that the federal government would continue to be so lax in handling our debt if it could end up messing with our own finances.

Lin the end, it may be best to differ to the founder of our entire financial system. Alexander Hamilton himself strongly believed that a national debt was not inherently a bad thing, as long as we continue to make good on our yearly payments. He understood that debt was healthy for a national government, as long as it had the ability to stabily hold such debt. The United States does indeed have that ability.

Balanced Budget Amendment?

For quite a while, I have heard calls for a balanced budget amendment to our constitution. What is a balanced budget amendment you may ask? It is actually quite simple. Such an amendment would essentially force the United States government to maintain a balanced budget, with no deficit spending permitted. Such an amendment would force our government to spend responsibly, and would be good for the economic health of our nation, right? As a current famous politician once said, "WRONG"!!! In fact, this amendment would be immensly damaging to the well being of the American people.

The problem with a balanced budget amendment lies in the very core of the issue: the idea that running a deficit is bad. This is simply false. Running a deficit is essential to the economic health of the nation in certain situations. Let's bring out a theoretical example. It is the year 2026, and the nation has just plunged into a depression. As unemployment rises, tax revenue plummets. This is of course exactly the time that the government should be spending more, in order to pull the nation out of depression. Now, with a balanced budget amendment, we have a couple possible options. The government could raise taxes in order to try and spend more; however, this would be taking more money out of the pockets of the already suffering citizenry. The government could also dramatically cut spending to compensate for the loss of tax revenue. This would make it extremely difficult for the government to continue the basic functions that it is required to conduct. Furthermore, the federal government would be unable to use any important economic reconstruction strategies, such as increased infrastructure spending or education subsidies. The third option would be to simply violate the constitution (seeing as it would have the balanced budget amendment at this time) and run deficit spending in order to bring in external money and maintain the necessary level of spending to continue providing services and run economic reconstruction programs. However, this would be unconstitutional, and would set the precedent for violating the constitution in the future. The choice between allowing an economic collapse and violating the constitution makes it clear that a balanced budget amendment would be nothing short of a disaster. Why not just run a deficit when necessary, and try to balance the budget in times of economic prosperity? The absence of a balanced budget amendment allows for the flexibility required for the continuation of economic prosperity in our nation, and I certainly hope that such an amendment is never passed in the future.

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