All excellent questions! Thanks for being interested. We will study the national debt in an upcoming chapter and all of your questions will be answered.

Yes, technically, the National Debt will never be paid off as long as our country exists. It is similar to the concept of most American families’ will never have all of their debt paid off until they die and wind down their estates.

The key point is that a country or a household must have an affordable level of debt. In other words, if a nation or individual borrows too much they will dig themselves a hole that will eventually cause them to go bankrupt. We’ll learn that a country measures “affordable debt” similar to a person: the debt must be a reasonable percentage of the person’s income, in the case of a household, or a reasonable percentage of a country’s income (tax receipts). The US debt will ALWAYS be rising in amount, but if it rises at a rate less than our government’s income (tax receipts) then it will become more affordable. As an example, if my teacher’s salary increases 2% per year, and my debt rises 1% per year, I have a more affordable debt burden even though my debt level is rising.

Right now the good news is that our national debt load as a percentage of our national income is consistent with the early 1990s and much lower than after WW II. The bad news, however, is over the last 10 years our increases in government spending and reduced tax rates have added 10 percentage points to our debt load causing us to move to a “warning” indicator. It’s affordable right now at 67% of GDP, but we cannot keep spending and taxing at the same rate or in about 10 years we will be in serious financial trouble! Congress and the President will eventually take action as we have countless times in our history, most recently by President Clinton where he reduced our debt level considerably by holding the line on government spending.

Yes, 25% of our country’s national debt is owed to other nations with Great Britain and Japan two of the larger countries. They have lent back to us our own dollars that we gave them when we bought their products. I am not as concerned as most are with this trend. Whether Joe Smith from Des Moines is owed the debt or Dave Connick from Liverpool is not really that relevant. The concern would be that if a nation all of a sudden sold their bonds (the debt) to other Americans it would raise interest rates. Bernanke is aware of this concern, but has stated it is really not a major risk. The bigger risk is that our government is too slow in passing legislation to keep our debt levels at a consistent level of our tax receipts.

Secondly, is a rising percentage of our national debt really being owed to foreign countries?
I know this is not a horrible thing necessarily, but in such as turbulent world I see many potential problems that could arise. If we cease you be on good terms with a foreign nation, could they not “make a run on the bank”? thus throwing the US economy into a frenzy