So what does high debt mean event? People keep talking about it but only use as if it was the bogeyman don't turn your back or the debt will get you.
That's a really good question, and I'm starting a new thread because I feel that a large number of people don't know, and I don't want the other thread to go too far off topic.
The national debts of all the countries of the world exist in the form of securities, which are essentially contracts that can be assigned a value and traded, like stocks. Debt in in the form of securities are called bonds and government bonds are called treasuries. When a government issues a bond, what they are actually doing is selling their debt. Investors, which in this case are called creditors, buy the national debt because they receive interest payments, much like when you borrow money from a credit card company or a bank. Companies often sell their debt as well, but stable government bonds are a much lower risk investment because their primary source of income is taxes rather than profits. The interest rate is called the coupon, and the date on which the issuer must repay the amount borrowed (often called the face value, the par value, or the principle) is called the maturity date.
There are three types of treasuries: t-bonds, t-notes, and t-bills. T-bonds have a maturity date beyond 10 years, t-notes are 1 to 10 years, and t-bills are within a year. It is important to note that the issuer of a bond sets the maturity date. If the government decides they need to sell a large amount of debt right away, we don't need to pay it back all at the same time. This makes repaying our debt more manageable, but keep in mind that the longer the treasuries are issued, the longer the US government will have to pay interest on the loan. The national debt clocks you see that show the national debt increasing at a rate of about $3.88 billion per day are calculating the increase in the US national debt due to interest.
Governments have credit ratings, just like individuals who use credit cards. The US national debt is approaching $12 trillion, but the US government credit rating is perfect. This is accomplished by moving money around between creditors. When a treasury reaches maturity, and the United States government does not have the money, it issues another treasury to pay off the previous treasury. The United States government makes sure that the governments credit rating remains spotless so that United States treasuries will continue to be a good investment, and creditors will continue to buy our debt. There is, however, a limit to this. Each individual creditor has a maximum limit to the amount they can invest, and there's a limited number of people in the world capable of buying our debt. As the national debt increases, we are approaching an undefined point where there will be nobody left to buy our debt.
There are a limited number of ways to reduce the debt. First, there's the classic raise taxes/cut spending approach. Neither are popular, and the two major political parties insist on only one or the other, where as the plan only works when both are done together. A second way debt is often reduced is by debt forgiveness. This is usually in exchange for political favors that may be more advantageous to the creditor than collecting on their treasury. A third means is the sale of state property. A fourth is economic Socialism, in which the government runs a particular industry and turns a profit. A fifth is to eliminate the creditor, since you can't pay someone back that no longer exists. Some good old fashioned pillaging would help the situation as well.
The sixth is to print more currency, which has the effect of decreasing its value. (Edit: Printing more money is done by borrowing from the federal reserve, which increases the national debt.) The seventh is extortion. Threats from a world superpower can pressure smaller nations to giving money. The eighth and extremely unlikely method of reducing the debt is liquidation, which means the United States government would be disbanded, and its states and property would be divided up between the creditors.
Critics of the United States argue that the US national debt is increasing so fast, that there's nothing the government can do to stop it any more, and that the United States is on the verge of destruction. While this may sound like a crazy doomsday theory, it may hold some merit. Theoretically, there is a point where interest rates will increase the national debt so rapidly that taking all options except liquidation to their furthest extreme will not stop its increase. Such a point would be impossible to define precisely.
