Analysis of US Debt (1992-2016)

Abstract

Debt is a result of higher expenses than revenues for a government. In case of the US, the expenses were nearly twice of its GDP, and hence a debt which is more than 100% of its GDP. There have been many trends as to when the fiscal deficit has been very high or when debt has risen to exorbitant levels. Prior to the 2008 crisis, this used to happen only in cases of wars, like the Civil War of the World Wars. Debt was traditionally used to fund the Military of the United States earlier, but now the focus has shifted more towards Mandatory expenses like social security, Medicaid or Medicare. Even within Mandatory expenses, the trend is such that % of expenses towards Social Security has come down, while the expenses on Medicaid and Medicare have increased significantly in the recent past. With relation to the debt portfolio, long term debt is a higher percentage of debt overall then Short term debt, and has been constantly increasing in our years of study. However, with respect to foreign currency debts, the portfolio has a decreasing ratio of long term debt since 2004 at a constant pace. It has reduced from 85% if total debt to 75%. Most of the foreign debt is currently held by China and Japan. Total Foreign debt of the USA is around 33% of its total debt, out of which 40% alone is held by these Asian nations. China’s interest in US Debt seems to be new as in 2000, it hardly held any US debt. On the contrary, UK’s holdings of US Debt seem to have fallen over the years. There are many stipulations as to why the US wants so much foreign money in its economy. One of the reasons possibly is the capital flow into the country. This motive has also been seen in the years 2009-2014 when the Federal Bank undertook the strategy of Quantitative Easing to reduce interest rates and increase the lending and liquidity in the economy. This has been our story on the US Debt and how its structure has changed over the years, and how the structure of its spending has been different over the years.