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There are two main reasons why having a high national debt is bad for the economy.
1. If our creditors decide that we aren't going to make good on our debt, then we're in big trouble. Basically, the government has to raise federal interest rates in order to pay off the interest on the debt. As a result, interest rates on everything else go up... Mortgages, credit cards, cars, etc. As a result people buy less, or buy smaller, or buy cheaper, which causes an economic recession.
2. Just paying off the interest on a high debt hurts the economy. Right now, 15 cents of every tax dollar goes to paying off the interest on the debt, most of which is held be foreign organizations. That means billions of dollars are leaving the US, and aren't being returned to Americans like tax dollars are, in services and the pockets of politicians, who, at least, are American. |