The national debt of the United States of America exceeded the number of nine trillion dollars for the first time in history, the U.S. Treasury said. Treasury Secretary Henry Paulson told congressmen in the middle of September that the federal government would reach the legal limit of the national debt on October 1 – 8 trillion 965 billion dollars. The government would thus find itself in a state of technical default on its obligations, Paulson added.
Henry Paulson urged the Congress to pass the bill increasing the limit of the national debt. The U.S. lawmakers followed the advice last month and approved the new limit – 9.815 trillion dollars.
It was the fifth time during George W. Bush’s presidency when the Congress raised the limit of the national debt – in the total of 3.865 trillion dollars.
The U.S. Democratic opposition believes that the ongoing increase of the country’s debt testifies to poor financial policies run by the current U.S. administration. The White House explains its requests with the need to fund the wars in Afghanistan and Iraq and other conditions required for the national security.
The national debt of the United States reached the level of one trillion dollars during Ronald Reagan’s presidency in the 1980s. Nowadays, each American holds about 33,000 dollars of the national debt, ITAR-TASS reports.
When the expenses of the U.S. Government exceed the revenue collected, it issues new debt to cover the deficit. This debt typically takes the form of new issues of government bonds which are sold on the open market. However, the debt can also be monetized by which the Federal Reserve creates an entry on its books to credit the US Government for an amount equal to the dollar amount of the bonds the Federal Reserve is acquiring. The money created in this process not only includes the new dollars that came into existence just to purchase the bonds, but much more because this new money is now sitting in the form of checkbook money at the Federal Reserve. Under the scheme of Fractional Reserve Banking this new checkbook money is treated as an asset to lend against. Economists estimate the expansion of the money supply as being many times the amount of the initial money created with the exact amount of the expansion being a function of the marginal propensity of the consumer to consume (rather than save) each new dollar.
The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew, briefly contracted to zero on January 8, 1835 under President Andrew Jackson but then quickly grew into the millions again.
The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in World War I.
The buildup and involvement in World War II brought the debt up another order of magnitude from $51 billion in 1940 to $260 billion following the war. After this period, the debt's growth closely matched the rate of inflation until the 1980s, when it again began to skyrocket. Between 1980 and 1990, the debt more than tripled. By the end of 2005, the gross debt reached $7.9 trillion, about 8.7 times its 1980 level.
Prepared by Dmitry Sudakov
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