Who Wins and Who loses From Public Debt - Research Paper Example

Who wins and who loses as a result of public debt? Depending on how debt will be used, debt can be beneficial to everybody where nobody loses when it is used to finance industry or other value creating enterprise. The American public will benefit to it by having higher discretionary income as a result of the productivity that resulted from value creating enterprise. The creditors also win because they made money on the interest lent to the government. Debt can also be a bane if availed for profligate and conspicuous consumption without any consideration of the capacity to repay.

This has been the case of the case of United States where public debt amounted to $15.5 trillion much of which has been used to “finance wars and wasteful conspicuous consumption” (Al-Jazeera, 2011). The stimulus package of President Obama which was meant to pump prime the US economy, which in principle been good, did not worked and only contributed further to the US mounting debt. As a result, Standard and Poor downgraded the credit rating of the United States from AAA credit rating, to AA+ (Bloomberg, 2011).

This manifested U.S. government’s inability to cut spending and put its fiscal management in order. In addition, the intramurals of US government officials on how to deal with its public debt also contributed to the downgrading of its credit rating. In this regard, it is the general American public who lost as a result of its public debt which was shabbily managed by its politicians. The amount of debt that the US economy incurred is staggering. In 2012, it is expected to reached $12.7 trillion (usgovernmentspending.com, 2012) without any end in sight.

Ideally, the growth or surplus of an economy should exceed the amount of interest of the public debt for the given economy to repay its debt. US is already way passed this point “where it could service its debt without going deeper into debt, let alone repay it” (Al Jazeera, 2011). According to the Congressional Budget Office (CBO), spending in 2001 to 2009 increased by 6.5 percent of GDP while revenue decreased by 4.7 percent of GDP resulting in a substantial deficit that has to be filled with further spending through debt that resulting to the current astronomical deb.

In 2011, GDP was expected to rise by $100 billion with a revenue of $2.16 trillion but spending amounted to $3.45 trillion that resulted to $1.5 trillion that is again to be borrowed compounding the insurmountable debt that the US already have Given the rate of spending compared to realized revenue, it is very clear that the general public will be the one who will lose because in the final analysis, these debts will be passed on to them by allocating tax payers to debt servicing which could have been spent on social services.

Also, the downgrading of the US credit rating will severely affect the American public because loans will become expensive as interest has gone up due to the downgrading of the US credit rating. Given this scenario, it is the general American public who lost as a result of its public debt.References:Detrixhe, John (2011). U.S. Loses AAA Credit Rating as S&P Slams Debt Levels, Political Process. Bloomberg. Online. Available at http://www.bloomberg.com/news/2011-08-06/u-s-credit-rating-cut-by-s-p-for-first-time-on-deficit-reduction-accord.html. REtrieved on January 19, 2012Rabie, Mohamed (2011).

Can the US repay its public debt? Aljazeera online. Available at http://www.aljazeera.com/indepth/opinion/2011/09/201191711255676761.html. Retrieved on January 19, 2012.USGovernmentspending.com. Recent US Federal Debt Numbers. Online. Available at http://www.usgovernmentspending.com/federal_debt. Retrieved on January 19, 2012.