We have been facing the consequences of debt since government had started to accumulate budget deficits by year after year tax-cuttings and increased spending. Nevertheless the national debt situation has led us to seek debt help from various debt settlement companies but in the short run the economy and voters benefited from deficit spending. Usually, holders of the debt want larger interest payments to compensate for what they perceive as an increasing risk that they won't be repaid. This added interest payment expense usually forces a government to keep debt within reasonable limits. According to the most recent budget forecast the 2011 budget deficit is at $1.3 trillion, which is more than $1.17 trillion deficit of 2010, but down from the $1.7 trillion deficit for 2009. The result behind the same are the processes called economic stimulus package or the 2008 government bailout measures apart from spending of roughly $800 billion for defense or security purposes along with tax cuts and alternative minimum tax patch. Moreover, the foreign countries have increased their holdings of Treasury Bonds as a safe haven and also kept the interest rates low.
Even during the recession, countries like China and Japan increased their holdings of Treasuries to keep their currencies low relative to the dollar. These taken together have been the primary causes behind the great US debt which has highly affected the overall US economy including the natives and the federal system. Since the social security fund of the baby boomers has been spent, resources need to be identified to repay this loan. . That would mean higher taxes, since the high U.S. debt rules out further loans from other countries. Unfortunately, it's most likely that these benefits will be curtailed, either to retirees younger than 70, or to those who are high income and therefore theoretically don't need Social Security. Second, many of the foreign holders of U.S. debt are investing more in their own economies. Over time, diminished demand for U.S. Treasuries could increase interest rates, thus slowing the economy. Furthermore, this lessening of demand is putting downward pressure on the dollar. That's because dollars, and dollar denominated Treasury Securities, are becoming less desirable, so their value declines. As the dollar declines, foreign holders get paid back in currency that is worth less, which further decreases demand. The conclusion can be a detrimental form of federal debt which can be compared with a vehicle with the emergency brake which is ultimately slowing down the US economy.
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