by Pennee Struckman

Created on: August 25, 2009   Last Updated: August 30, 2009

The US National Debt does affect the average citizen. The size of the National Debt affects the interest rates for borrowing and investing, the federal income tax paid, the prices paid for groceries, and the unemployment rates.

First: What is the definition of the US National Debt?

The US National Debt is the sum of the public and government debt. Public Funds are Treasury Bills, Notes and Bonds sold to the public. Government debt is the amounts borrowed from foreign government and restricted government funds.

Currently, the US National Debt is $11,746B (billion). The amount of "stock" in the federal government, or public debt, is $7,415B, and the government has borrowed is $4,331B.

Second: How does it affect the average person?

1. When the government chooses debt the average citizen is not taxed more heavily. The US operates on tax revenues. When the government spends more than it receives, there is a budget deficit. The government is then faced with a choice. Raise taxes or sell Treasury Bills, and Government Bonds, and borrow money

2. The average citizen can borrow money and pay less interest on the loan. The American economy is based on Supply and Demand. Presently 70% of US production is for personal consumption. If supply exceeds demand, the average citizen is laid off. In response, the Federal Reserve lowers interest rates to stimulate the economy.

3. American Recovery and Reinvestment Act results in less incomes taxes paid by the average citizen. The Federal government borrows more to funnel money into the economy. The money borrowed is from the Social Security Trust Fund and foreign governments. In short, the Recovery Act increased unemployment benefits and provided tax cuts. This is intended to increase the amount of money people have to spend. This will then increase business production, and increase jobs.

Third: How will this debt affect people in the future?

A high National Debt may sound alarming. But historically, the high debt has successfully restored economic health. The US economy emerged from the Great Depression when the US entered World War II. The war effort created jobs, which then created disposable income. Since most of the jobs centered on weapons and equipment production, consumable products were rationed. Most disposable income was invested in government bonds. The National Debt was at 120%.

The National Debt was at its lowest level in 1980, at 40%. In 1980, the national debt was at it's lowest. The average interest rate for a conventional loan was 12.7%. The interest yield on investments was 12.68%. Income tax for a single person making $20,000 was 3,829.

In contrast, in 2009, the average interest rate for a conventional loan is 5.57%. The interest yield on investments is 2.5%-1.39%. In 2008, an individual making $20,000 paid $2,608 in income taxes.

When the National Debt begins to decrease, the average citizen will pay more income tax. They will pay more interest when buying a home. Their spending power will decrease as businesses charge more for groceries and other goods to offset the business cost of borrowing money. But unemployment rates will decrease because businesses will prosper also.

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