The National Debt

Essay by paulwilliamsUniversity, Bachelor's October 2009

download word file, 19 pages 5.0

BackgroundIntroduction to National DebtThe national debt is a term used to refer to the money or its equivalents in credit that the government owes at any level. It spans from local governments through municipal government as well as federal and state governments. The money owed at any of these levels constitutes part of the national debt. It is also known as public debt since the money is owed for past expenditures on public infrastructure and facilities. The difference between government expenditure and receipts, on the other hand, constitutes what is commonly known as the budget deficit. A huge part of the deficit is what makes up the national debt. This is due to the fact that the government actually spends more money than it has available, or than it can acquire through such channels like taxation (BPP 2009). Government deficit or rather government debt can be classified into various categories depending on multiple considerations.

If the debt is classified depending on who is owed, it can be categorized into the debt owed to lenders from within the same country; hence, it is called internal debt. The debt owed to those lenders from outside would then be called external debt. The government has three ways that it uses to raise this kind of income and these are government bonds, treasury bills and securities. These are traded for money and the holders of the items are treated as investors whose return on investment is interest upon the maturity of the bond, bill or security. The ability of a government to borrow depends on its creditworthiness. This is determined by the stability of the government. If countries are not considered creditworthy, then they are compelled to borrow from supranational institutions such the World Bank and the International Monetary Fund.

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