Sample Essay on Effects of US Public Debt
What is Public Debt? This is an economic state where the government is spending more than it earns its revenues. Also known as a public deficit, it is a common phenomenon in the world today. Both developed and developing economies are threatened by this, even though the effects may vary from nation to nation. This is largely based on the causes of the debt and the reaction of the government to tame the situation. In this essay, we shall explore some of the effects of US public debt, since the world’s superpower has not been spared either.
It is worth noting that U.S public debt affects citizens regardless of their status in society. Both the poor and the rich suffer its consequences even though those underprivileged in society feel the effects of adversities most. Research shows that the US public deficit has overgrown the country’s population, raising concerns over the looming effects of the debt. Though not known to many, debt affects people, some of which have been discussed in this paper. The first one is the likelihood of the government failing to service the deficit despite being its obligation to do so. To curb this, the Treasury Department will have no other but to increase revenues on treasury securities to lure potential and willing investors into the market. As a result, there is reduced tax revenue for the government to spend on other services. This is because people will have to help pay the debt through high taxes and interest rates. The ultimate effect of this scenario is a drop in the living standards of most people, as they cannot afford credit from financial institutions because of interest rates.
The second impact of America’s public debt is the high cost of products and services in the market. With high rates on treasury securities, US companies will be considered riskier than others in the world, forcing them to increase costs to meet their deficit service obligation. When people pay more for goods and services, this opens the door for inflation as the public has money but they cannot afford basic needs because of high prices charged by companies.
With increasing rates on treasury securities, it is doubtless that the price of homes will shoot. This is because the interest charged by financial institutions directly affects the affordability of mortgages. However, since very few people will be able to pay for loans and buy homes, demand for real estate will drop. Consequently, the value of homes will go down, and this will have a negative impact on homeowners as their net worth tumbles.
Another impact of the US public debt is that it is discouraging people to take risks and invest. Thus equity investments, which previously attracted many Americans, will lose public appeal. While investors take risks, they also become cautious especially when the economic environment does not offer hope for recovery in the near future. In essence, companies that take the risk will find it difficult to offer a justification of one investing with them. For example, the firm will not raise sufficient pre-tax income to cater to high-risk premiums. This is commonly known as the clouding effect and has the tendency of encouraging the expansion of the government and cutting down the private sector simultaneously.
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