The US National Debt: An Eternal Revolving Balance

Understanding the dynamics of the US National Debt, and the mechanics behind its continuous growth, is crucial in analyzing the economic health and fiscal policies of the nation. For a simpler answer to the question of who 'decides' when the US national debt gets paid off, it's Congress. However, this oversimplification does not fully cover the complexity of the issue.

How the Debt Continuously Rises

Kicking the can down the road is a phrase often used to describe the US approach to the national debt. This essentially means that when the US government spends more than it takes in through tax revenue in a given fiscal year, a deficit is created. To make up for this shortfall, the government borrows money by selling Treasury bonds and bills. These bonds and bills have maturity dates, and upon reaching these dates, they must be paid off.

However, if the government does not have a budget surplus, it resorts to issuing new bonds to pay off old ones. This process, much like having a revolving balance on a credit card, leads to the continuous accumulation of debt. If you cannot afford to pay down the balance, you charge your expenses on the credit card and use the money for those expenses to make the minimum payment. This is similar to how the US government handles its debt.

Congress and the Role in Debt Management

For the debt to be significantly reduced, Congress would need to move towards a self-imposed austerity, which would mean reducing spending and/or increasing revenues to achieve a budget surplus. However, this is not an easy task given the political landscape and the need for bipartisanship. The current economic system is structured in such a way that the government borrows to pay its debts, perpetuating the cycle of indebtedness.

Consequences and Risks

One of the primary risks in this scenario is the potential for a loss of investor confidence. If no one buys the US bonds anymore, the government may be forced to pay a higher interest rate to attract buyers. This is what occurred in Greece in 2013, where bond yields soared to nearly 10%. A high-interest rate means a greater financial burden on the government, making it harder to service the debt.

Another risk is the potential for a government default, where the government fails to make scheduled payments. This would have significant consequences for the national and global economy. Given the interconnectedness of financial markets, a US government default could lead to global economic instability, interest rate hikes, and a decline in investor confidence in other government bonds as well.

Conclusion

While the US national debt continues to be paid off through the issuance of new bonds, it will never be truly eliminated. The government continually borrows to meet its fiscal obligations, much like a credit card user continually charges expenses to pay off the balance. This cycle will continue until the government decides to implement significant changes in its fiscal policies, such as a budget surplus and a reduction in spending. Until then, the national debt remains a ticking time bomb, potentially leading to default if left unchecked.