Page 24 - Banking Finance August 2023

ARTICLE

What is Difference between the Deficit bills, and other securities. The national debt is the
accumulation of this borrowing along with associated
and the Debt?
interest owed to investors who purchased these securities.
The terms deficit and debt are frequently used when
discussing the nation's finances and are often confused with
Fiscal Surplus/deficit of United State (in
one another.
trillion U.S. dollars)
To pay for a deficit, the government borrows money by selling
Treasury bonds, bills, and other securities. The national debt
is the accumulation of this borrowing along with associated
interest owed to the investors who purchased these
securities. As the government experiences reoccurring
deficits, which are common, the national debt grows.

Deficits from previous years are added to the current year's
deficit to equal total debt. In reality, the government must
pay interest on the national debt. This interest expense
increases spending each year, increasing spending (and thus,
deficits) as the debt grows.

Now let's talk about US debt ceiling and the most talked
crisis.

What is US Debt ceiling and why it has

been imposed?
The U.S. has carried debt since its inception. Debts incurred
during the American Revolutionary War amounted to over
$75 million by January 1, 1791. Over the next 45 years, the
debt continued to grow until 1835 when it notably shrank
due to the sale of federally-owned lands and cuts to the
federal budget. Shortly thereafter, an economic depression
caused the debt to again grow into the millions. The debt
grew over 4,000% through the course of the American Civil
War, increasing from $65 million in 1860 to $1 billion in 1863
Source: UStreasury.gov
and around $2.7 billion shortly after the conclusion of the
war in 1865. The debt grew steadily into the 20th century In the last 50 years, the federal government budget has run
and was roughly $22 billion after the country financed its a surplus five times only, most recently in 2001.
involvement in World War I.
The above fiscal deficit has created a huge debt burden on
the United State.
Notable recent events triggering large spikes in the debt
include the Afghanistan and Iraq Wars, the 2008 Great
Recession, and the COVID-19 pandemic. From FY 2019 to
FY 2021, spending increased by about 50%, largely due to
the COVID-19 pandemic. Tax cuts, stimulus programs,
increased government spending, and decreased tax revenue
caused by widespread unemployment generally account for
sharp rises in the national debt. To pay for government
programs while operating under a deficit, the federal
government borrows money by selling U.S. Treasury bonds,

24 | 2023 | AUGUST | BANKING FINANCE