ONE SHOULD NOT BE UNDULY ALARMED BY THE SIZE OF GOVERNMENT DEBT AS IT DOES NOT NEED TO BE REPAID AND THAT THIS IS A DEBT THAT WE OWE TO OURSELVES. DISCUSS Name: Instructor: Task: Date: There is no alarm for the government’s debt size as it does not need to be repaid and that this is a debt to us Introduction Government debt refers to the aggregate value of the bonds and securities that the government has incurred in deficits…
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The following theories affirm that there is no alarm when government acquires debt. Attainment of key objectives in providing amenities to the citizens should be the primary concern of the government holding the people's wealth in the form of taxes, fees and fines (Burda & Wyplosz, 2005). Policy makers take account of risk factors more than the mere increase in price value of the loans before going for one. Therefore, it is imperative to say that the increase in government debt should not be a prime concern to the citizens since an amount borrowed and well spent can warrant further borrowing as the amenities set up provide an indispensable source of creating more national wealth (Gordon, 2006). As the government expands the supply of money through creating national debts, inflation is bound to occur. When the government tries to pay off this debt, the supply of money in the circulation tends to decrease causing deflation. Thus, when there is payment of any noteworthy sum of liability more than the national debt is being made at any given time; up to, ten times less, the amount is due for repayment (Gordon, 2006). This is to say if the government paid all its debt today, money supply would contract upwards by approximately ten per cent (Carlin & Soskice, 2006). This would translate into a decrease by around one third of money in circulation, and a reduction by one-third the price of the price of commodities. This adjustment period hampers the monetary trade, translating into large pay cuts and citizens not being able to afford basic amenities. This forces Companies to adjust their workforce salaries below the minimum wage rate (Wells & Krugman, 2009). It is worth denoting that a gigantic government debt should not be a bother to the citizens, as payment of this lump some debt will result to citizens bearing the complex consequences of an expensive lifestyle. It is imperative to state that a range of factors determine the coupon payment including the face value, frequency of payment and maturity of the bonds. It is vital to consider the yield on comparable investment plans in the loan repayment schedules. The government thus gets enough time to get value for the advanced loans before they are due for repayment (Pentecost, 2010). Considering the current market value of the bonds issued and debt owed, the government will pay a lower end sum amount than the amount formally lent. In case the bonds were issued to internal lenders, it significantly becomes clear that the money is ploughed back to the economy and money owed to the country’s citizens and held by the state in accomplishing fiscal objectives (Blinder and Baurnol 2010). Therefore, this implies that the size of government debt should not bother the citizens on its repayment manner as at times, the debt tends to be lower compared to the amount borrowed initially, implying that the remaining portion caters for a better and improved economy. The debt to income ratio (DTI) measures the government’s revenue that goes in settling debts (Dornbusch, Fischer & Startz, 2001). The government has a duty to cater for the welfare of its citizens and cannot collect enough revenue in taxes to cover for all the recurrent expenses, and physical developments. This necessitates for borrowing to meet the obligations and targets of the fiscal year. There is a need for
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(Government Debt Essay Example | Topics and Well Written Essays - 1500 Words - 1)
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A similar view is the theory of Ricardian equivalence. The theory of Ricardian equivalence argues that financing debts through bonds is merely deferred taxation and is basically similar to current taxation (Dornbusch et al. 2011, pp. 336-337). Thus, because debts are merely taxation postponed, they have no effect on the economy (Miles and Scott 2005, p.
29). Government debt can be classified into two categories namely the internal and the external (Chamberlin and Yueh 2006, p.86). Internal debt refer to the amount of funds collected within the country from local investors and government run institutions such as pension trust fund.
It is a crisis which has been largely credited to the sovereign government crisis as well as issues in the financial market affecting various countries in the European zone. This paper seeks to present the issues experienced under the financial market, mostly those which relate to the stock market, the bond market, and the equity market.
In this paper, we will discuss how fiscal deficit and debt position of a country affects its economic growth. We will take the example of Germany and assess the data from 1998 to 2012 to make conclusions about this relationship. Fiscal Performance of Germany (1998-2012) Year Govt Debt (€ billions) Deficit/Surplus (€ billions) Real GDP % ?
The economic growth of any country is regarded as a multi-variance system. The reason why this is so, is that the economic growth of a country is not determined by only one factor (Dessler, 2007). The couple of factors not withstanding, one key element that cannot be eliminated in the determination of the economic growth of any major country such as the United States is the public debt and deficit of the country.
Deficit, Debt and Political Theory of Government Debt Introduction Budget Deficit being highly dangerous vs. Ricardian Equivalence The theory of Ricardian equivalence is a theory of Economics by Robert Barro. The theory states that when a government proposes a tax cut to increase consumer spending, this leads to a higher budget deficit financed by more treasury bonds, which does not lead to much economic growth.
Where the global financial crisis has landed the biggest economies of the world into trouble, it has also offered them another chance to look over their current economic and financial practices and what they have been doing wrong. Not only has the crunch changed the way development is judged but has also lead to change in the way development is perceived.
As the discussion stresses, the total amount of these IOUs equals the total of the debt that the specific government has not paid. This includes all the amounts outstanding which are inclusive of interest to be paid and the principal amount. The government debt is unlike other private accounting procedures where debt is a measurement of assets.
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