Question

Are we passing the national debt burden on to our children?

Answer 1

Public debt is basically a matter of decades. Continued borrowing to fund tax cuts or consumer spending today creates a heightened burden on current and potential Americans. A infant born in the USA today will inherit nearly $50,000 in national debt instantly. While the debt will never have to be actually repaid, it still has costs. For one, younger and future generations will feel the economic effects of the debt most strongly. Both cumulate over time, with increasing revenue, rising interest rates and declining fiscal space. The CBO forecasts that rising debt would reduce GNP by 1% in 10 years, 2% in 20 years and 6% in 30 years,

Moreover, the unsustainable debt route means that today's low taxes or high spending would eventually have to be balanced, to some degree, by the future. Policymakers are all but guaranteeing higher taxes and reduced expenditure on potential consumers and government beneficiaries by borrowing more today. As a minimum, there will be an growing interest strain on younger and future generations and debt payment will continue to increase.

Indeed, rising interest rates may already have an adverse effect on future generations. The federal government is expected to spend more on meeting its debt obligations by next year than it does on all services and education for children. In other terms, the government should spend more on financing the consumption of the last generation than on investing in the future.

The fact that the US borrows in its own currency makes default or insolvency extremely doubtful. The strong economy of the nation, sound monetary policy, stable political structure, and full faith and credit in paying our sovereign debt have so far stemmed any fears that the United States would not fulfill its obligations. That may not last forever, however. Endless spending on the deficit, tax cuts and inability to make the difficult decisions on what to prioritize would inevitably lead creditors to doubt our creditworthiness.