Sample Essay on Causes and Effects of Public Debt

The financial crisis in the globe has not only brought a sharp economic strike and uncertainty but also instigated deterioration in public finances in most of the nations. Public debts have become one of the many challenges facing both developed and less developed countries. It is an issue that has been affecting the lives of private citizens as well as public corporations. Most of the countries with huge debts are experiencing problems now and then. There are many concerns in an economy that can easily cause immense fluctuations in the stock prices in the financial markets.

The national debt can easily expand if appropriate methods of control are not embraced. Each government needs to know the best strategies to use and minimize government borrowing. To come up with suitable solutions, it is wise to comprehend the causes and effects of public debt. There is a deep-rooted and complex history of the many causes of governmental debts. From the historic viewpoint, it is clear that the cause of large debts in developing countries is a result of the unjust transfer of the debts owed by colonizing states to their accounts.

The history of the third world [currently known as the developing countries] debt is attributed to a massive siphoning-off by international finance of the resources of the most underprivileged countries. The colonial countries had the opportunity to organize their economies and keep them running while the new debtors remain crumpled by the heavy debt burden placed on their shoulders.

Historically, there was mismanaged lending and spending by the West between the 1960s and 70s. This led to the printing of more dollars and this rapid availability of the dollar as the main trading currency pegged the oil-producing countries. Later in 1973, oil prices rose and these countries made more money and invested in western banks leading to increased money-lending. All in all, there a few other key causes of public debts that many economist have been able to provide essential details on, and they include;

1. Increased government spending- Many governments have utilize their available resource and the only option to meet other public goals was through borrowing more money. Federal expenditures increase on daily basis whilst the federal revenue as also reduced simultaneously.
2. Increasing budget deficits- The federal governments in many nations are not bound by the constitution to have a balanced budget. However, after numerous reforms over the years, great changes have occurred and this has led to increased budget deficits which push the federal government to borrow and this adds up the public to cover the disparity between revenues and expenditures brought in by government spending.
3. War-preparedness- Many countries have spent a lot of money in war or preparing for any anticipated war. A lot of funds have been spent on nuclear programs and this has pushed some countries to borrow more increasing the national debt.
4. Increase debt ceiling- In U.S the government has the ability to raise the federal debt ceiling or the amount of debt the government can handle at a given time and this increases spending and a rise in the public debt.
5. Other causes of high public debts include urge for economic growth, undertaking public welfare schemes, corruption, and undermining budget deficit on current accounts.

If public debts are taken for productive purposes such as irrigation, railway, roads, human skill development, and much, it will not mean any harm. But if the debt is unproductive, it will come with undesirable effects. For instance, it will have effects on distribution, consumption, levels of employment, income, and production. Therefore, it is upon each government to come up with great ways of spending that will not burden the public with debts.

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Online sources:

http://www.ehow.com/list_6674710_causes-public-debt.html

http://www.globalissues.org/article/29/causes-of-the-debt-crisis

http://www.freewebs.com/maeconomics/Public_Finance/public_debt.htm