The Consequences of a Growing National Debt

Introduction 

A national debt may be described as the total amount of money that government of a given country has borrowed. In the case of the United States, the national debt is considered as intra-governmental and the public debt owed or acquired by the federal government. This national debt exists in two forms. One of them is held by members of the public where the government owes the debt to a member of the public who buys its bonds. The other form involves an intra-governmental debt where the federal government owes other government departments. In some countries, growing national debt has been linked to situations of abrupt loss of investors' confidence accompanied with a sharp increase interest in the interest rates charged on this particular debt (Spilioti & Vamvoukas, 2015). Despite the real adverse consequences of growing national debt, a personal Christian worldview may be used in its analysis and interpretation. 

Consequences of a Growing National Debt 

According to Barta (2018), a growing national debt could be associated with four main consequences namely reduced national income and savings, higher interests in debt repayment, lowered capability while responding to problems as well as increased risks of fiscal crises. 

Reduced National Income and Savings 

The sustenance of large deficits tends to raise interest rates thereby causing a considerable decrease in investment. A growing national debt results from higher borrowing from the government. When a government increasing borrows, a substantial percentage of the amount allocated for investments would be directed towards securities. Consequently, there would be a considerable decrease in the amount of money spent on investments in private ventures such as computers and factories thus lowering the productivity of the workforce. Even though deficits often raise the demand for services and goods in a short-term period, it would be difficult to sustain such a boost upon full recovery of the economy. The stabilization of forces like rebounds of interest rates or price by the Federal Reserve would lower the potential output (Taylor et al., 2018). 

Higher Interests in Debt Repayment 

Growing national debt would raise interests thereby creating considerable pressure concerning other forms of spending by the government. As interest rates go back to typical levels that were previously experienced and the debt rises, a rapid increase in interest payments occurs. As interest increases the amount spent on the budget by the federal government, there is always a lower amount remaining to be spent on other programs of national importance. If the national government is interested in maintaining the same level of services and benefits to its people without incurring large deficits, it will be forced to generate more revenues. The accomplishment of this initiative could be achieved in various means, but to a level that such increments are facilitated through higher rates of marginal tax ( Barta, 2018). Besides, these rates would act as a discouragement for people from saving thus leading to a further reduction in productivity and income. 

Lowered Capability while Responding to Problems 

In most cases, governments are involved in borrowing with the objective of addressing unexpected events such as financial crises, natural disasters and wars among others. Borrowing may be more comfortable for a smaller national government. Nonetheless, a rapidly increasing national debt limits the options of a government in financial crisis. For instance, the federal government of the United States found itself in a financial crisis many years ago. During this time, the debt was just about forty percent of the gross domestic product which made it easier for the government to stimulate economic growth. However, this situation led to the growth of the federal debt to about twice the percentage of its share of the gross domestic product. A further increase of the national debt would make it more challenging and difficult for the government to implement various policies aimed at stimulating the economy ( Feldstein, 2011). For that reason, future financial crises and recessions would be accompanied by considerable negative impacts on the performance of the economy as well as the wellbeing of members of the public. Further, increased dependence on aid from foreign investors and lowered financial flexibility associated with growing national debt could weaken the political bargaining power of a nation in its region. 

Increased Risks of Fiscal Crises 

If the national debt continues to grow, there will come the point when the confidence of investors in the federal government's capability in paying the debt will be eroded. At that point, investors are more likely to increase their demand for interest rates associated with that particular debt. This situation would lead to a sudden and sharp rise in interest rates that would result in adverse economic impacts on various other sectors (Barta, 2018). Moreover, the increase in interest rates has the potential of lowering the value of the market for government bonds that are outstanding thereby resulting in losses for business entities creating massive financial crises for financial institutions. 

Christian Worldview on National Debt 

Indeed, the challenge concerning the consequences of growing national debt could be examined and analyzed from the worldview of a personal Christian or a Biblical perspective. Borrowing and lending may be considered as relational practices that entail Christian principles and moral obligations of promise-keeping, care, and love. According to Psalm 37:21 and Romans 13:8, Christianity teaches that debts are like promises that are expected to be honored without failure. As such, defaulting to prepay a national debt is morally unacceptable since the lender is deprived of his or property and a promise is not kept. 

Furthermore, the Christian worldview does not always encourage borrowing since it believes that the debtor entangles himself or herself in financial bondage through borrowing according to Proverbs 22:7. The implication of that particular Christian perspective is that debtors are always under the obligation of keeping their promises to pay back the money they borrowed to prevent them from losing the collaterals or freedom as described in 2 Kings 4:1 and Deuteronomy 24:7, 13. In this respect, the Christian worldview strongly believes that it would be wise for a national government to try everything within its ability to stay away from a growing national debt if it cannot repay. Instead, it would be wise for such a government to manage its financial independence through saving and prudent spending. 

According to Christian teaching from Deuteronomy (15:1-6; 12-18), debts may be subjected to periodic cancelations and the release of debt-slaves. This teaching implies that there would be no need for extending long-term debts from one generation to the other. Rental contracts, leasing, and equity are part of the alternatives that are preferred to debts hat bear interests as responsibility for ownership. If national government has the obligation of incurring debt, there are crucial perspectives that may be used in interpreting and analyzing the government's decision from a personal Christian worldview. The Bible is against failure to repay debts. Psalm 37:21 indicates that the wicked do not repay after borrowing. From this scriptural statement, one can conclude that the Christian worldview discourages the growth of national debt to an extent where the interest rates have increased beyond the ability of the government to repay. In that case, the Bible refers to such a government as wicked. However, this scripture does not imply the existence of anything wrong with being declared bankrupt. For instance, at a personal level, the law in the United States allows businesses and individuals in financial crisis to regroup then re-establish their economic statuses while being protected by bankruptcy regulations (Spilioti & Vamvoukas, 2015). Ultimately, nevertheless, the Christian worldview requires borrowers such as national governments to have a moral obligation to pay back their creditors despite the circumstances facing them. 

According to Proverbs 11:15, a person who offers to put up security on behalf of another person during borrowing will surely suffer, but if he or she will be safe if he refuses to participate in that kind of a pledge. In this scripture, the Biblical perspective on debt implies that any commitment to borrowing without being sure of repayment is unwise since it could lead to an increase of interest beyond the repaying capability. Besides, a growing national debt may be considered as a violation of two Christian principles that appear to have a direct effect on the relationship between God and people. The first one involves the Bible warning against having a presumption upon the future concerning repayment of borrowed money. However, the Bible does not directly condemn the act of borrowing money because there are those who borrow and can pay back according to the terms agreed upon without fail. According to the Bible, no one except God is sure about the occurrences of the future. 

Thus, it would be unwise for anyone to borrow and promise to repay in future with absolute certainty. James 4:13-15 states that instead of promising about the future with certainty, one should say if God allows it to happen. The second principle refers to Philippians 4:19 where the Bible assures Christians that God will supply all their needs. Therefore, borrowing should not always be the first resort. Spilioti and Vamvoukas (2015) observe that the financial crises around the globe have been able to show that private debts are capable of causing an immediate collapse of financial institutions. The crisis in the public debt crisis that affected several Western counties is a slow-burn issue that, it not tacked tackled conclusively, will continue to become more complex until governments find themselves in situations of resorting to draconian inflation, confiscation of wealth, or spending cuts. Without rapid changes and transformation, advanced democracies are often ill-equipped in making mitigating decisions while their populace increasingly reflects the interests of those nearing retirement. Christians are linked to a unique perspective in addressing the underlying issue of the consequences associated with growing national debt. Practical policy solutions may be obtained the Christian worldview concerning debt with the objective of promoting justice for the present and future citizens. 

Risks of Growing National Debt 

Other that gradual effects associated with an increasingly growing national debt, there would be a considerable increase in the likelihood of experiencing crises regarding fiscal management. During this time, there would be a loss of confidence in investors regarding the ability of the government to remain in control of its budget. Further, there is a higher likelihood that the government would lose its ability to make additional borrowings at affordable rates. There is a possibility that there would be a gradual increase in interest rates while the investor's interest goes down. For example, the point at which such a crisis may be experienced is usually unknown since the ration of the national debt to the gross domestic product may be extending into unknown regions. The other reason for experiencing this crisis is the tendency of the risk of it being affected by several other factors such as the state of the economy, the outlook of the long-term budget of the government, and present borrowing need of the government. Whenever a government experiences a fiscal crisis, the economic downtime also occurs which often leads to the amplification of the challenges concerning the adjustment of fiscal policy. Whenever financial crises occur, they usually happen during an economic downturn, which amplifies the difficulties of adjusting monetary policy in response. If a fiscal crisis were experienced in the United States, there would be a reflection of the abrupt increase in interest rates through the fears of the investors (Bohn, 2011). 

This situation would go to the extent of causing the federal government to renege on the conditions associated with its debt that there would be an increase in its money supply with the object of paying creditors or financing its activities thereby increasing inflation. To restore the confidence of investors and that of the member of the public, there would be a need for the involvement of policy-makers in the formulation and enactment of tax increments and spending cuts. Such a situation may prove to be more painful or unbearable for some investors. Higher levels of national debt for a country could result in several other temptations and vulnerabilities. For instance, relying on the financing of the deficit and the obligation to finance maturing debts with additional opportunities to borrow may expose a country to the vulnerability of loss of confidence from potential future lenders. National debts are usually not backed by collaterals but through the willingness and the ability of a government to impose taxes on its populace. When the bonds of a government are held in a disproportionate mane by buyers from a foreign country, there exists a specter that they may have the liberty to use the sale of bonds as foreign policy tools to help in influencing other nations. Such an action could lead to active destabilization of the economy of the debtor country (Feldstein, 2011). Either way, countries with rapidly-growing national debts often lose their independence and freedom concerning policy maneuver where they end up becoming subject to the whims and decisions of their creditors. 

Things that should Change 

Fiscal policy is among the things that should change in trying to fix the issue of growing national debt. While stimulating the economy through a reduction of the national debt may form part of the general objectives of most administrations in developed countries, the achievement of such goals often requires the inclusion of tactics, approaches, and techniques that seem to have mutual exclusivity. Governments may issue bonds with the aim of getting money. That move makes it possible for such governments to avoid imposing higher taxes on its citizens as well as the provision of money that is necessary for stimulating the economy. Feldstein (2011) maintains that even though it may be required to change certain things regarding a growing national debt, finding an appropriate and effective solution may not be easy. In this respect, raising the revenue may be considered as one of the changes in fixing a growing national debt. The implication of raising revenues by the government is increasing taxes such corporate tax, estate tax, income tax, and gasoline tax among others. The raining of taxes by without causing unnecessary harms to the growth of the economy of a country would significantly increase the number of revenues collected by a significant margin. Consequently, the government would be in a better position to finance most of its infrastructural projects and activities without relying on borrowing. 

Reduced spending is another option that would be considered as part of the changes that should be implemented as a way of trying to address the challenge of growing national debt. For example, the federal government of the United States could significantly lower its dependent on debt by adopting different ways of prudent spending such as cutting its spending (Bohn, 2011). The annual expenditure of the US governments in offering services and guarding its citizens' welfare is about $4.4 trillion. This value implies that the expenditure of the federal government on every citizen is approximately $13,500 yearly as estimated for the 2019 fiscal year. However, in this particular fiscal year, the estimations of the government indicate that it is going to receive just about $3.4 trillion amount of revenue, resulting in a deficit of nearly $1 trillion for which the government would be required to borrow (Taylor et al., 2018). To achieve parity between revenues and expenditure and subsequently lower the rate of the growing national debt, the government would be expected to cut down expenditure to bring it to a value that is almost equal to that of the revenues collected. 

Conclusion 

In summing up, it worth acknowledging that growing national debt is extensively associated with adverse consequences to the development of the economy as well as the wellbeing of the populace involved. Some of the consequences of a growing national debt include reduced national income and savings, higher interests in debt repayment, lowered capability while responding to problems as well as increased risks of fiscal crises. The issue of growing national debt could be examined and analyzed from the worldview of a personal Christian or a Biblical perspective. It is clear that the Christian worldview requires borrowers such as national governments to have a moral obligation to pay back their creditors despite the circumstances facing them. 

References 

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http://www.jstor.org/stable/j.ctt22727f8.6 

Bohn, H. (2011). The Economic Consequences of Rising U.S. Government Debt: Privileges 

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http://www.jstor.org/stable/41303592 

Feldstein, M. (2011). Preventing a National Debt Explosion. Tax Policy and the Economy, 

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Spilioti, S., & Vamvoukas, G. (2015). The impact of government debt on economic growth: 

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