How The National Debt Actually Works
Summary: We hear a lot about the national debt, but many of us don’t really know what it is or how it works. Today we will have an apolitical discussion on how the national debt actually works.<br> The national debt is big boogeyman during election years but how bad is it really and do you need to worry about it?<br> What is the National Debt?<br> The federal government takes in a certain amount of revenue and spends a certain amount of revenue. If it takes in more than it spends, there is a surplus. If it takes in less than it spends, there is a deficit. The amount of that deficit is the national debt.<br> Who is to Blame?<br> The president, any president, deserves neither as much blame they get when there is a deficit or as much credit as they get when there is a surplus. Our Constitution gives Congress the power to tax, spend, and pay or not pay the federal government’s debts.The president can propose a budget, but Congress has to pass it.<br> If you want to see how much we’re spending and how much we’re bringing in, here it is.<br> <a href="https://www.nationalpriorities.org/analysis/2016/presidents-2017-budget-in-pictures/"></a><br> <br> <a href="https://www.nationalpriorities.org/analysis/2016/presidents-2017-budget-in-pictures/"></a><br> Raise the Roof<br> The<a href="https://www.youtube.com/watch?v=KIbkoop4AYE"> debt ceiling</a> is the amount of debt the federal government is allowed to carry. It is similar to the limit on your credit card. If your limit is $10,000, that’s all you can spend. There is a very significant difference though. You don’t get to set the limit on your credit card; the issuer decides that. You only get to choose how much of that $10,000 you’re going to spend.<br> Congress in this scenario is both the issuer and the spender. They get to set the debt ceiling amount and spend the money. When the spending ceiling is reached, the Treasury Department can’t issue any more Treasury bills, notes or bonds. It can only pay bills when tax money comes in.<br> But if there is one thing Congress loves, it’s loopholes. To prevent the US from defaulting on its debt, they can raise the debt ceiling. And they do. In 2008 and 2009, the ceiling was raised four times.<br> It’s Not Like Your Debt<br> While we all need to have a balanced <a href="https://www.listenmoneymatters.com/go/mint/">budget</a> because <a href="https://www.listenmoneymatters.com/pay-off-your-debt/">debt is bad</a> for us, the same <a href="http://time.com/money/4293910/national-debt-investors/">isn’t true</a> for a nation’s budget. Deficits can be useful for a country’s economy. Deficit spending achieved by cutting taxes or by the purchase of goods and services by the government can <a href="http://governmentisgood.com/articles.php?aid=30&p=3">help the economy. </a><br> “That is because much of the money that the government borrows and spends goes to the private sector. Private industry must then prepare to provide the various goods and services demanded by the government….In order to do this, these businesses must invest in new production facilities and greater productivity. This “crowding in” effect thus helps to mitigate any negative effects that public borrowing has on the private sector by indirectly encouraging more private investment and business growth.”<br> How Much We Owe and To Whom<br> You can see how much the national debt is at real time by watching the <a href="http://www.usdebtclock.org/">US National Debt Clock</a>. The current number is $20.6 trillion. The national debt is divided into<a href="https://www.nationalpriorities.org/budget-basics/federal-budget-101/borrowing-and-federal-debt/"> two categories,</a> intragovernmental holdings, and public debt.<br> Intragovernmental holdings is a fancy way of saying money the government owes to itself and represents about 30% of the national debt.
