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debt, public, indebtedness of a central government expressed in money terms, often referred to as national debt. The debt is computed differently by nearly every nation. Some authorities exclude all government obligations other than those incurred by public borrowing from individuals.
The U.S. national debt originated with the American Revolution and as of 2020 amounted to more than $20 trillion. President Ronald Reagan made the debt a campaign issue in his successful presidential run (1980), but the national debt nearly tripled during his presidency. By the late 1990s, however, a federal budget surplus allowed President Bill Clinton to start paying down the debt—the first time this action had been taken since 1972. In 1998, Clinton presented the first balanced federal budget (with no annual deficit) since 1969. By 2002, however, the large tax cuts enacted under President G. W. Bush, combined with the effects of an economic slowdown and increased expenditures on national security following the Sept. 11, 2001, attacks on the United States and the U.S. invasion of Iraq, led to new deficits and an increase in the national debt. In the financial crisis that began in 2007 and the subsequent recession, the U.S. government's efforts under Presidents Bush and Barack Obama to stabilize the financial system and revive the economy led to record budget deficits, and significant increases in the public debt, especially through 2012. Under the Trump administration, government spending to compensate for the economic effects of combating COVID-19 increased the deficit and public debt dramatically, and as the economy contracted led the public debt to approach 100% of GDP for the first time since the 1940s.
Reasons for Government Indebtedness
Governments may borrow to meet temporary needs, as when estimated revenue falls below or is exceeded by estimated expenditures. Short-term treasury notes, payable by increased taxes or by greater economizing, may be issued, but such a debt should not become permanent. Nonetheless, many national goverments incur such debt because of an unwillingness to limit spending or increase taxes for fear of the political consequences. Borrowing to finance public works, especially when widespread unemployment exists, is another source of public debt and is justified in part by their long-term social utility. The largest public debts are incurred to meet emergencies, such as war debts that arise when it is difficult to finance the extended activities of the government by new or increased taxes, or when the government must borrow abroad to finance the war effort..
Public debt is advantageous in that part of the national funds are secured at an interest rate lower than that provided to private industry and in that the financial operations of government are funded on a permanent basis. It may also have an expansionary effect on employment and production during times of high unemployment. The disadvantages are that unjustifiable projects may be undertaken because the full burden of payment is postponed; that the government's demands may become so large that the interest rate on government bonds will rise to the point where money is diverted from private enterprise; and that too great a debt may induce governments to depreciate currency or default on obligations.
Forms of Government Indebtedness
Payment of the Public Debt
See R. Heilbroner and P. Bernstein, The Debt and the Deficit (1989); D. Stabile, The Public Debt of the United States (1991); J. S. Gordon, Hamilton's Blessing: The Extraordinary Life and Times of Our National Debt (1997).
the total indebtedness of the state in outstanding loans and unpaid interest. Based on the sphere in which loans have been floated, national debt is divided into internal and external. According to the term of repayment, a distinction is made between capital debt (indebtedness on which the term of payment has not expired) and current debt (the term of payment expires in the given or following fiscal year).
Under capitalism, the occurrence and growth of the national debt are engendered by the mode of production itself. V. I. Lenin pointed out that national debts, like taxes, are objectively necessary for the maintenance of a bourgeois state (see Poln. sobr. soch., 5th ed., vol. 33, p. 12). The indebtedness of the world’s capitalist states attains huge amounts. In the USA by 1970 it totaled $485 billion (including the indebtedness of state and local government bodies), and in Great Britain,£44 billion. In many capitalist countries the national debt increases more rapidly than national income, so that the ratio of the total national debt to national income increases. Whereas in the USA in 1914 the national debt amounted to 3.3 percent of national income, in 1969 it was 63 percent; in Great Britain the corresponding figures are 31.2 and 126.1 percent, respectively. The direct cause of the increase in the national debt is budget deficits. In addition the growth of the national debt entails a direct increase in the state’s obligations because debt obligations are presented annually to the treasury for payment.
In developing countries, the national debt consists primarily of external loans. In 1970 the indebtedness of developing countries had reached $60 billion. In the 1960’s the growth rate of external indebtedness was approximately double that of these countries’ export revenues. The growth of payments on external debts is a heavy burden on the economies of developing countries. For example, the Latin American countries spend about 35 percent of their currency revenues from exports on repayment of external indebtedness
In prerevolutionary Russia, the systematic growth of the national debt was based on the issue of numerous state loans and treasury-guaranteed private loans. As of Jan. 1, 1914, it totaled 8,811,200,000 rubles. After the October Socialist Revolution, in accordance with a decree of the All-Russian Central Executive Committee on Jan. 21 (Feb. 3), 1918, all national debts of the tsarist and Provisional governments were annulled, while the rights of small-scale holders of state securities were preserved.
In socialist countries, the national debt is caused by the necessity of using loans as one of the methods of attracting the population’s monetary resources for net socialist investment and the improvement of the people’s well-being. As of Apr. 1, 1957, when the issue of state loans to the population by subscription was ended and their repayment was deferred for 20 years, the USSR national debt amounted to about 26 billion rubles. The Twenty-fourth Congress of the CPSU (1971), taking into account the country’s increased economic potential, adopted a decision to redeem ahead of schedule (by six years) the loan bonds remaining in the public’s possession. In 1974–75, 2 billion rubles’ worth of bonds will be redeemed, and in subsequent years the size of payments on bonds will be increased; all bonds will be redeemed by 1990.
R. D. VINOKUR and T. V. GUIDA