Q:

What are the pros and cons of national debt?

A:

Quick Answer

A pro of national debt is that it is a good way for countries to get extra funds in the short term to invest in economic growth, whereas a con is the risk of accumulating too much debt. The federal government borrows money from the public and from itself.

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Full Answer

Debt can improve the standard of living in a country by allowing the government to build new roads, improve education and job training and provide pensions. Over time, these benefits more than pay for the interest accrued. Budget deficits are critical to help make up for lower investment and private spending during an economic recession.

Too much government borrowing can cause economic problems by driving interest rates up and causing inflation. It is also unwise to run a large deficit to finance spending that is unlikely to cause higher future economic growth. When the national debt-to-GDP ratio reaches a critical level, investors generally begin to demand higher interest rates due to the higher risk, causing more income to go toward repaying the debt and less toward growth and government services.

The national public debt includes debt to individuals, businesses and other governments through the issuing of treasury bills, notes and bonds. The federal government most commonly borrows from itself through the Social Security Trust Fund.

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