Should you be worried about your national debt?

The national debt matter has been a hot topic for a discussion for many decades. Some people believe that raising the taxes is more honest, than increasing the government debt, when it comes to government spending. What do you think of it?

August 25, AtoZForex – Interesting fact, some citizens are actually more worried about the governmental debt, than taxation matters. National debt is a very important problem nowadays because people get scared just by the numbers they hear. Let’s take the UK’s national debt, which accounts for £1.7 trillion. When people hear that the Britain has a debt of £1.7 trillion most of them mainly concerned with the word “trillion”.

Should you be worried about your national debt?

What is more, you can actually observe how the UK’s governmental debt is rising, as there are some websites, showing the live clock. As it appears, the UK’s national debt is growing at a rate of £5,170 per second. However, there are no existing websites showing the live clock of the growing tax base, which, in reality, is rising pretty rapidly. As a fact, last fiscal year’s tax data shows that UK government collected as much as £750bn in taxes.

However strange it may seem, many people believe that it is more appropriate for the governments to raise the taxes than to go for more national debt. How is this right, you will ask? Some of the people say that they don’t want their children and grandchildren to experience the burden of the national debt. Nevertheless, it is necessary to mention that the people sharing such kind of opinion are usually ones of the elderly generations. They always tend to think that the “debt” is not good in any of its forms. Yet, they are very well educated. The only thing is missing here is the proper knowledge of public finance, as they explain their negative perception of the national debt as the consequence of their inner bad feeling.

Talking about the facts, UK’s national debt currently accounts for 84% of its GDP, which is very close to the threshold of 90%, suggested by the Harvard economist Kenneth Rogoff, Carmen and Vincent Reinhart. It is believed that beyond the 90% the economic growth turns to stagnation. Mr. Rogoff believes that the higher the governmental debt, the greater the risk of national default. Hence, the costs of another government borrowing are also higher. This, in turn, boosts the costs of fresh private sector borrowing.

Is this actually true?

However, all these arguments are illogical for the fiscal matters. A government that can issue a debt in its own currency can also keep the interest rates low.

As for the argument about the burden on the future generations, there is a counter-argument for this by the economist AP Lerner. He believes that the burden of reduced consumption to pay for government spending is carried on the shoulders of the generation that lends the nation the money originally. Moreover, the idea of the additional government spending being restrained to decrease the private consumption by the same amount assumes that there is no flow of extra income comes from additional government spending. However, this has not been true all around the world since 2008.

See also: German Ifo Business Climate Index hit by Brexit

In the end, taking all of the “for” and “against” arguments into the consideration, where is the truth? Share your opinion in the comments section below.

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