BoombasticBoombasticOr public debt, the sum total of a governments pecuniary obligations. The national debt is the result of a states borrowing from its population, from foreign governments, or from international institutions such as the International Bank for Reconstruction and Development. Public debts tend to be large-scale credit operations and are contracted on a national scale by central governments and on a lesser scale by provincial, regional, district, and municipal administrative bodies. In the U.S., public debts are also contracted by the states and by local governments, primarily for public works.
Kinds of DebtNational public debts are contracted chiefly through the flotation of interest-paying loans, in the form of bonds, bills, or notes. Historically, these loans have been undertaken to raise money for wars and national defense and to finance public works. More recently, governments have taken loans to meet national budgets or expenditures that are not covered by revenue, or to seek to improve economic conditions by counteracting unemployment or depressions, or both, with deficit budgets. Not all financial authorities agree that nations should carry a high level of public debt, as it can be inflationary. Rather than the level of debt, however, the most important consideration is the capacity of a nation to service its debt.
The Debt-Lenders Act, passed in 2008, expands the role of public entities to finance public debts. If they are nationalities, the government can raise debt from other sources in the form of bonds, and vice versa (see the section Financing International Debt for a list). Private entities are defined as “commercial banks” for international public purposes. In certain cases, such as energy, other nations must fund public debts in a different form from the private sector.
While public financing of debts may be relatively free of legal consequences that include the possibility of fines and imprisonment, private companies could face fines and/or legal costs for debt lending they did not finance at the national level. The US Congress passed the Debt-Lenders Act of 2012. It is aimed at improving the integrity of government debt by making it more predictable, transparent, and transparent. The U.S. Securities and Exchange Commission adopted the SEC Act of 2013, and the Federal Reserve Bank of Minneapolis, where the Fed has a history in lending, has already taken steps to require companies that have been the subject of federal loan regulations to establish credit ratings.
Public agencies in addition to the Federal Reserve to the Treasury also have to report to Congress on their compliance with the legislation. The National Taxpayers Federation has called for an independent audit of government government debts by the Consumer Financial Protection Bureau. The agency has collected more than $17 billion in government debt since 2008 and is expected to return more than $35 billion in the next twelve years if the law is repealed.
The Debt Reform Act of 2011, the federal income tax and payroll tax reform bill, also passed and is part of the Congressional Budget Office estimates. It proposes changing the law to set national income taxes in such a way that the federal government’s budget is comparable to the economy’s. It has also taken account of the fact that many countries across the world do not have adequate federal funding to cover basic payments to the people, thus reducing the cost of basic services such as medical care, food, education, and recreation. In addition, because it has taken these countries several years to establish and comply with laws defining how national budgets are to be paid, there are no significant changes to the rules concerning the public debt payments. The act gives government the authority to provide government-funded basic public services, including health care and social assistance. The bill also allows for appropriations to be authorized by President Obama to pay up to $5.6 billion to countries where public debt is not a primary determinant of economic growth. It is expected to receive bipartisan support in the Senate.
The Debt-Lenders and Government Accountability Act of 2014 prohibits the government from making payments in debt to anyone other than creditors that are not bound by the Act or the relevant statutes. The Department of Justice is also proposing to amend the Balanced Budget and Emergency Deficit Control Act to allow the government to pay for non-defense discretionary assistance to governments and private entities. Government officials also
Some long-term maturing debt is repaid by short-term borrowing that does not add materially to the total indebtedness. The redeeming of public debts includes the repayment of principal on maturity; amortization through periodic payment of part of the principal; and the buying up of government securities on the open market. Many governments have established sinking funds for the purpose of redeeming public debts; debts redeemed in this way are called funded debts. Most government loans fall due at fixed dates, but a number, known as perpetual loans, have no definite expiration dates, and governments floating them have the privilege of redeeming them when convenient or desirable.
Although government loans are for the most part not secured by physical assets, they are regarded in law as contracts carrying an obligation on the part of the debtor to repay. Nevertheless, governments, when hard-pressed during economic crises or as a result of political upheavals, have sometimes repudiated their public debts in whole or in part. In many cases, also, a government to whom another is in debt may agree to forgive the debt or reschedule its payment over a longer period.
HistoryIn earlier times debts contracted by heads of state had the legal status of personal debt; public debt emerged as a systematic element in a countrys economy when regular sources of income became available to provide funds to repay loans, a monetary system became fully formed, and an organized money market came into operation. The first examples of public debt surfaced in the late 17th century in Europe and became more prevalent with the rise of the modern state and the banking and credit system that grew out of the Industrial Revolution.
Today, the finances involved in contracting and redeeming the public debt of a country are a sizable proportion of its government budget. As the money for redemption of the public debt is raised principally through taxation, the size of the national debt is a factor in determining taxation rates.
National public debts, taken on a world scale, have almost without exception shown a tendency to increase. The estimated total public indebtedness of the world at the end of the 18th century was about $2.5 billion. During the 19th century, Great Britain was the only world power to reduce its national debt. In 1890 the world total of public indebtedness had risen to an estimated $27.5 billion, an increase in a little less than a century of more than 1000 percent. Thereafter the increase continued until the end of World War I, after which indebtedness declined. Following the onset of the worldwide economic crisis in 1929, public debts rose as governments resorted to public works to provide jobs for the unemployed. The outbreak of World War II caused national indebtedness to soar to astronomical proportions.
The Economic Consequences of the Civil War
World War I’s Great Depression and Depression of 1931-36 hit the American public hard, with the biggest annual rise in national debt to $18 billion.
The Depression was a major turning point in American history, and nearly wiped out the economy. The unemployment rate in the West was only over 10 percent, which set the stage for the Depression by allowing people to take a job that provided their families with food, housing and protection against a crippling mortgage. By the early 1920s the unemployment rate had surpassed 40 percent for a decade, with many struggling to get by.
As America rose from a population of about 500 million in 1834 to half of its present citizens in 1916, the rate of U.S. national debt began to rise.
The Depression of 1931-36 hit the American people hard, with the biggest annual rise in national debt to $18 BN. And in July 1931 federal and state debt grew to an estimated 18 million, from about 3 million at the start of the Great Depression to 14 million by the end of 1932.
After 1933, the unemployment rate went up to about 1 percent and the federal government’s debt increased to almost 21 percent of the total. In 1928 federal debt increased from just over 30 percent of the total in 1933 to almost 32 percent in 1938. The Depression of the 1930s hit the country hard for the same reason. The rate of federal government debt surged as a result – it soared to the point where more than two-thirds of the nation’s government’s resources were being used up, and many of its resources were at the mercy of an economic crisis whose effects had resulted in an increase in the economic rate of the National Debt.
As it came to the brink of its peak in 1933, the nation’s economy began to pick up speed: wages increased and wages increased, unemployment increased and in 1937 unemployment rose to the point that unemployment rates had increased by 18 percent – the highest average in the U.S. postwar history. In the 1930s the unemployment rate went even higher when federal government borrowing reached levels sufficient to finance virtually all of the national debt
The Great Depression of 1931-36 also hit the poor. As a share of the labor force, the number of Americans with the least income went up more than 50 percent in 1929. The average hourly wage for black workers shot up by 6 percent and the average wage for white workers fell by 17 percent, from a peak of 6.9 percent in 1932-33. By 1932 people with the smallest incomes were hit to the highest rate they have got since the 1930s – and to the highest percentage since at least the Civil War.
The Great Depression hit the poor hardest, with the poorest 10 percent of income earners cutting out loans and increasing taxes on the top 1 percent.
Meanwhile, the middle class fell dramatically and the incomes of many middle-income Americans rose in some cities, including Detroit, Chicago, Philadelphia, New York and Boston. By 1931 people with incomes below the average of $25,000 had experienced even more pain, from taxes ranging from 20 percent annually on the highest-earning to over half a percent for
The Economic Consequences of the Civil War
World War I’s Great Depression and Depression of 1931-36 hit the American public hard, with the biggest annual rise in national debt to $18 billion.
The Depression was a major turning point in American history, and nearly wiped out the economy. The unemployment rate in the West was only over 10 percent, which set the stage for the Depression by allowing people to take a job that provided their families with food, housing and protection against a crippling mortgage. By the early 1920s the unemployment rate had surpassed 40 percent for a decade, with many struggling to get by.
As America rose from a population of about 500 million in 1834 to half of its present citizens in 1916, the rate of U.S. national debt began to rise.
The Depression of 1931-36 hit the American people hard, with the biggest annual rise in national debt to $18 BN. And in July 1931 federal and state debt grew to an estimated 18 million, from about 3 million at the start of the Great Depression to 14 million by the end of 1932.
After 1933, the unemployment rate went up to about 1 percent and the federal government’s debt increased to almost 21 percent of the total. In 1928 federal debt increased from just over 30 percent of the total in 1933 to almost 32 percent in 1938. The Depression of the 1930s hit the country hard for the same reason. The rate of federal government debt surged as a result – it soared to the point where more than two-thirds of the nation’s government’s resources were being used up, and many of its resources were at the mercy of an economic crisis whose effects had resulted in an increase in the economic rate of the National Debt.
As it came to the brink of its peak in 1933, the nation’s economy began to pick up speed: wages increased and wages increased, unemployment increased and in 1937 unemployment rose to the point that unemployment rates had increased by 18 percent – the highest average in the U.S. postwar history. In the 1930s the unemployment rate went even higher when federal government borrowing reached levels sufficient to finance virtually all of the national debt
The Great Depression of 1931-36 also hit the poor. As a share of the labor force, the number of Americans with the least income went up more than 50 percent in 1929. The average hourly wage for black workers shot up by 6 percent and the average wage for white workers fell by 17 percent, from a peak of 6.9 percent in 1932-33. By 1932 people with the smallest incomes were hit to the highest rate they have got since the 1930s – and to the highest percentage since at least the Civil War.
The Great Depression hit the poor hardest, with the poorest 10 percent of income earners cutting out loans and increasing taxes on the top 1 percent.
Meanwhile, the middle class fell dramatically and the incomes of many middle-income Americans rose in some cities, including Detroit, Chicago, Philadelphia, New York and Boston. By 1931 people with incomes below the average of $25,000 had experienced even more pain, from taxes ranging from 20 percent annually on the highest-earning to over half a percent for
Beginning in the 1970s, inflation, high interest rates, and a tenfold rise in the price of oil contributed to the ever-increasing world debt. Developing nations borrowed heavily from international capital markets