Running Head: U.S.

National Debt: Literature Review 1

U.S. National Debt: Literature Review
Edward Luis Rodriguez
University of Texas at El Paso


Running Head: U.S. National Debt: Literature Review 2

Abstract
The United States of America is currently trying to fight a battle with recession. Politicians have
been continuously debating amongst each other about how to fix the cause. The national debt has
been a controversial topic in congress because many people have their different opinions about
paying back the debt. This literature review analysis will inform readers about the national debt
itself, showing facts and statistics, and itll present you with different articles that have their own
opinions about the topic.


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The U.S. National Debt: A Review of Literature
The United States of America has been in debt for majority of its existence. Since the
Revolutionary War, The United States has had many issues regarding the national debt. As of
right now, the United States is in debt approximately 17.5 trillion dollars, the most that its ever
been in. That means that each citizen owes the government about fifty-five thousand and twenty-
two dollars to the federal government (DebtClock 2014). This issue is very important because it
affects the citizens in many ways. Since the major crisis has arisen, more taxes have been
imposed, cost of living has gone up, inflation has increase, and excessive borrowing has occurred
amongst people struggling trying to make ends-meet. This issue has kept citizens with less
money to keep from payroll paychecks, thus creating less opportunities for investments, and
productivity to expand the economy. The worst part about this debt crisis is that it keeps getting
worse. The government continuously spends more money than they have thus not helping out the
cause. Since the year 2008, the debt has risen enormously, in just a matter of six years.
There have been many debates, not only in congress, but among the citizens of the United
States as well about this controversial topic. Many worry that the country will financially
collapse and that the U.S. dollar will no longer be the worlds reserve currency. There have been
campaign advertisements, documentary films produced, countless number of debates, and tons of
articles written because of the ongoing financial crisis the United States faces today. Despite all
of these different genres that have been produced because of this topic, this written text will
present readers with six written articles about this crucial topic. To help get a better
understanding about the about the ongoing debate about the national debt, four questions have
been developed as main points to help structure and organize this document:
1. What is causing the national debt to fluctuate?
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2. What is the government doing about this debt crisis?
3. What are the potential consequences to this debt crisis?
4. Are there ways that citizens can help out the cause?
The following reviews will provide more information about what the U.S. national debt is itself,
how government is going about trying to fix the problem, the consequences that have arisen from
the financial crisis, and ways that the citizens can do to help out. Itll also attempts to answer
these four questions that have structured the text.
What is causing the national debt to fluctuate?
It is important to first understand what the U.S. national debt is and its historical
background to answer this question. However, most people arent even aware about this topic.
Figure 1 illustrates an unscientific online survey conducted by the author to get a better
understanding about how well people know about this topic. A hundred people of many different
demographics participated and were asked, Do you know what the current U.S. national debt
is? According to the survey, eighty-five percent were completely unaware about the debt crisis
and fifteen percent of the participants answered yes.

No
85%
Yes
15%
Do you know what the current U.S.
national debt is?
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Despite the results being from a smaller scale of the general population instead of a much larger
scale of people, the results of this small sample may indicate that they dont even know the
approximate number that the U.S. government owes.
In a research article written by James Agresti (2011), the author provides a chart, figure
2, to show where the government has used the money and the percentage that it contributes to in
the whole national debt.
The author found in his research that foreign and international investments were the biggest
contributing factors to the U.S. debt. Agresti (2011) also mentioned that Foreign purchases of
U.S. government debt increase the demand for this debt, thus putting downward pressure on U.S.
interest rates. Conversely, foreign sales of U.S. government debt place upward pressure on U.S.
interest rates. Another research article that was written by Francis Warnock (2010) also
mentions a similar result about the national debt. In his article he states that because the United
States has an assertive foreign policy and borrows money effortless, foreign investors have been
skeptical about investing in U.S. bonds. Both of these articles have a similar theme that
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borrowing money from foreign countries and the lack of foreign investments to the country has
been a huge contributing factor to the national debt.
What is the government doing about this debt crisis?
The U.S. debt clock (2014 ) now says that the current debt that the government owes to
people is 17.5 trillion dollars. Some argue that raising the debt ceiling is important to sustain
consistent economic growth, while others argue that the government needs to start paying down
the debt to prevent a financial collapse from occurring. Whatever the argument may have been,
the government has attempted to fix the problem. In a research article from the Global Financial
Database written by Bryan Taylor (2012), the article says that government has tried to manage
the countries Gross Domestic Product (GDP) in order to deal with the national debt. Taylor
(2012) says that the government has reduced the debt/GDP ratio by running surpluses, running a
deficit to shrink the debt/GDP ratio, and has inflated prices high to get the GDP nominal to grow
faster. The article briefly mentions that the government has tried to cut back on government
programs such as Medicare, Medicaid, and Social Security. Because the standard of living and
the life expectancy, due to medical and technology advancements, has risen tremendously in the
last century, the budget cuts havent been effective. Thats why the government has tried to deal
with the GDP ratio by running on surpluses or deficits.
Although the main argument in Congress has always been about cutting back on
spending, the government has also tried raising funds to generate revenue and pay off the debt.
Another research article that was written by Ken Edge (2014) mentions how the government has
borrowed funds from other sectors of the economy by issuing treasury bonds, printed money, and
have borrowed from international banks to try to pay off the debt. The author says that
borrowing funds from other sectors of the economy is the preferred type of debt financing
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because the government would not be adding to foreign net debt. The article also mentions that
when government tries to sell assets, such as government bonds, the sustainability of income is
limited because not everyone thinks that the government can pay back its creditors and investors.
In an interview conducted by the author with Robert Coronado, senior business
economist at the Federal Reserve Bank of Dallas in El Paso and a clinical professor at the
University of Texas at El Paso, stated that the Federal Reserve was trying to keep interest rates
low, so that people can start spending money and the economy can start generating revenue. He
also mentioned how if people were to hold on to their money and leave it in the bank, the
economy would not grow efficiently because there would be less money flowing into the
economy.
What are the potential consequences to this debt crisis?
The government being in 17.5 trillion dollars in debt does have an effect on people.
Whether it indirectly or directly effects you, the government still has an effect on every citizen in
the United States. In the interview with Dr. Coronado, he mentions that if the government
doesnt start paying back its debt to creditors, the impact of this crisis would affect the middle
and low class the most. He says that the result of this would lead to higher inflation and interest
rates, and less private investments. Ultimately, economic growth would decrease at a steep rate
because of the lack of money circulating in the economy. A research article written by Romina
Broccia (2012) mentioned similar ideas that Dr. Coronado had. The author of the research article
stated that creditors may lose its confidence in investing in the country if interest rates rise
because of the ability to pay back debt. Investors may also start to demand for higher interest
rates to offset the risk of investing (Broccia, 2012). Broccia (2012) also mentioned that higher
inflation would most likely lead to reduced purchasing powers of families, senior citizens run out
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of savings sooner, fewer job opportunities, and less private investment opportunities for
innovation and creation of productivity.
The research article written by James Agresti (2011) also mentions potential
consequences. Based on Agrestis (2011) research, the results indicated that the potential
consequences of not fixing the national debt would lead to:
reduced "future national income and living standards";
"reductions in spending" on "government programs";
"higher marginal tax rates";
"higher inflation" that increases "the size of future budget deficits" and decreases the
"the purchasing power" of citizens' savings and income";
restricted "ability of policymakers to use fiscal policy to respond to unexpected
challenges, such as economic downturns or international crises";
"losses for mutual funds, pension funds, insurance companies, banks, and other
holders of federal debt"; and
increased "probability of a fiscal crisis in which investors would lose confidence in
the governments ability to manage its budget, and the government would be forced
to pay much more to borrow money."
The results of both of the research articles and the interview with Dr. Coronado indicate that
investing was impacted the most by the national debt. They also both mention how economic
growth is very important to fixing the debt.
Are there ways that citizens can help out the cause?
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The survey conducted by the author also asked Take a guess: Where do you
think the national debt is approximately at right now?, and the answer choices were A)
in the thousands, B) in the millions, C) in the billions, D) in the trillions, E) the
government isnt in debt. The results in figure 3 is based on the people that answered
either correctly or incorrectly.

Despite the survey sampling a small section of the general population instead of a big
section and not being exactly on point with numbers, the survey indicated that people are
nearly unaware about whats happening in government and the economy today. The
correct answer to this survey is, D) in the trillions. The government is now is 17.5 trillion
dollars in debt (Debt Clock, 2014). Based on these results one thing that citizens can do
to help out the cause is to bring awareness to the public about it. The lack of knowledge
about the national debt is impacting the crisis because people wont act to it if theyre
unaware about the situation.
Incorrectly
91%
Correctly
9%
Where do you think the national debt is approximately at
right now?
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Besides bringing awareness to the public about the crisis, there are other ways that
citizens can help out the cause. Dr. Coronado mentioned in the interview that consumer
spending helps keep the flow of money in the economy consistent, which is important for
economic growth and that the simple principal of not spending more money than what
you have is important also. Running up credit, taking out excessive loans, and not paying
it back has left the Federal Reserve to bail out businesses and banks, which has costed a
lot of money. A research article written by De Los Santos (2013) mentions that citizens
can help out the cause by paying their bills on time, saving money, not take advantage of
government programs, such as food stamps and welfare, and dont spend more money
then what you have. De Los Santos really emphasizes that too many people take
advantage of the programs that the government offers. People sign up for food stamps
because they cant pay the bills, and then you see them with the latest, most expensive,
phone out there.
Conclusion
The U.S. national debt has been an issue in government since it declared its
independence from Great Britain in 1776. Over the years many different politicians,
federal employees, and presidents have all had their ways of going about solving the debt
crisis. All of the literature mentioned in this text all had a common idea that the national
debt is a problem in the United States and that action needs to take place in order to
prevent negative consequences from occurring. The national debt has been and will
continue to be a debatable topic.
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References
Agresti, J. (2011, April 26). National debt. Retrieved from
http://www.justfacts.com/nationaldebt.asp
Broccia, R. (2012, Februaray 12). How the united states high debt will weaken the economy
and hurt americans. Retrieved from
http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-
will-weaken-the-economy-and-hurt-americans
De Los Santos, M. (2013, Februaray 20). 10 ways to eliminate the federal debt by 2030 .
Retrieved from http://www.policymic.com/articles/26973/10-ways-to-eliminate-the-
federal-debt-by-2030
Edge, K. (2014). Methods of financing the deficit and use of a surplus. Retrieved from
http://www.hsc.csu.edu.au/economics/policies_mgt/2484/Topic4Tutorial3.html
Taylor, B. (2012). Paying off government debt two centuries of global experience. Retrieved
from https://www.globalfinancialdata.com/news/articles/government_debt.pd
U.S. Debt Clock. (2014). U.S. Debt Clock. U.S. Debt Clock. Retrieved from
http://www.usdebtclock.org/
Warnock, F. (2010, June). How dangerous is u.s. government debt?. Retrieved from
http://www.cfr.org/financial-crises/dangerous-us-government-debt/p22408