Money Cap Mkts

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Category: Business and Industry

Date Submitted: 10/01/2012 03:27 PM

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I believe that one of the most important financial problems that the United States is facing involves the national debt level. Over the course of my life, I have heard and learned more about the levels of national debt and have also seen it rise dramatically. Excessive government spending has created much of this debt and if this trend of spending and tax rates continues, debt may reach an even more dangerous level in the future. Continuing in this trend will lead to an insupportable Federal debt, unless it is devalued heavily through heavy inflation. In an even more extreme scenario, should the government be forced to default on some of their commitments, the impacts would definitely be severe both in the American economy in general (as well as globally), but also in the context of money and capital markets.

As the government becomes more and more unstable in terms of how much money it owes to itself, there will be a surge of uncertainty in the bond markets, which would place pressure on interest rates. The hike in interest rates would also make it increasingly difficult for American businesses and home-buyers to succeed. Additionally, the decrease in demand for bonds and U.S. treasuries would result in the decrease in the value of the dollar against other currencies. Though this might help increase American exports as the prices drop internationally, exporters would still feel the same strain from more expensive borrowing from the higher interest rates.

Recently, the national debt level has exceeded $16 trillion. It is clearly the highest it has ever been, and has shown an enormous jump from approximately $14 trilllion about a year ago. With the debt ceiling currently at $16.39 trillion, we can expect to see the debt level reach or even surpass this level within this upcoming year. It is evident that the level of our debt has only been going up and has shown no sign of slowing down unless we make a change. Although the debt level may seem to mostly affect...