US government debt sustainability Presenter: Nazmus Choudhury Discussant: Devin Barnes

What is Debt Sustainability ? Debt Sustainability: Debt sustainability means the ability of a country to pay its debt without requiring debt relief. The IMF and World Bank (IMF-WB) use a debt sustainability framework (DSF) to identify overborrowing situations that may endanger macroeconomic stability. In the DSF, a baseline set of 20-year projections for borrowing, GDP growth, exports, and other key macroeconomic variables underpin an analysis of key debt ratios. Debt sustainability is important for an economy to save the country from default debt.

Why is debt Sustainability Important for the US? Debt Sustainability is important because it helps to keep stably moving the economy. No one wants to fall in debt default. To prevent debt crisis sustainability makes a vital role. For that, we need to keep observing our GDP because in GDP we have X-M where X= export and M=Import. External debt servicing as a share of trading. Creditors and debtors have equal responsibility for debt sustainability to avoid unwanted situation. Debt can be beneficial if the return amount is less than borrow.

The relationship between debt and Budget: There is a positive relationship between debt and budget. When we have a budget deficit, we borrow money to meet up the shortage. As a result, debt occurs. We can express by mathematically : Deficitt=rBt-1+Gt-Tt Where r=real interest payments Bt-1= Government debt at the end of year Gt= Government spending on goods and services Tt= Taxes minus transfer t year Here we can say the budget deficit is the interest payments on debt, including government spending and taxes.

Explanation of the mathematics: Deficitt=rBt-1+Gt-Tt If the interest rate on debt is higher which is “r” and our spending is higher as well which Gt in this Gt we have social security, Medicaid, unemployment benefit and many more and finally Tt represents tax. Run three of them at a time which is rBt-1 ↑, Gt ↑, and Tt ↓ we will have a deficit and to meet this deficit we will borrow money This mathematical formation shows us there is a positive relationship between budget deficit and debt.

Does the increasing debt have any risk? It is hard to say that debt has a positive or negative impact on the economy because many economists believe that borrow money can create production work which will lead to a higher return. There is always another side of the coin. So, many economists believe that debt is a risk for the long run because if borrowers fail to return might have a chance to fall in default debt.

Critical Evaluation of the Debt: Let’s assume Mr. ‘X’ borrow money say $10000 for education having a belief that will return that money after graduation complete. After having a degree, Mr. ‘X’ failed to manage a sophisticated job. As a result, he will fall in loan default. Therefore, borrow money in future return is not easy and the measurement has to be perfect to gain from the borrow. In the short-run, Mr. X did an excellent job completed his education, but in the long-run, he is in trouble. This personal example we can use in our national debt level.

Historical data analysis FRED Graph Observations Federal Reserve Economic Data Economic Research Division Federal Reserve Bank of St. Louis FYGFD Gross Federal Debt, Billions of Dollars, Annual, Not Seasonally Adjusted Frequency: Annual, Fiscal Year observation_date Debt in Trillion Dollars 1999-09-30 5605.5 2000-09-30 5628.7 2001-09-30 5769.9 2002-09-30 6198.4 2003-09-30 6760.0 2004-09-30 7354.7 2005-09-30 7905.3 2006-09-30 8451.4 2007-09-30 8950.7 2008-09-30 9986.1 2009-09-30 11875.9 2010-09-30 13528.8 2011-09-30 14764.2 2012-09-30 16050.9 2013-09-30 16719.4 2014-09-30 17794.5 2015-09-30 18120.1 2016-09-30 19539.5 2017-09-30 20205.7 2018-09-30 21462.3 Historical data analysis

Graphical presentation of Data:

PROSPECTS FOR RESOLVING INTERNATIONAL DEBT CRISIS TO MAINTAIN DEBT SUSTAIABLITY The ultimate solution to the current international debt problem is economic growth. The US can pay the debt by using internal sources including human, natural and technology. But to gain enough money to pay debts need to monitor our fiscal policy. Proper policies need to maintain debt sustainability. We Should not make any decision for short rum and leave the problem for the nation in the long run. Yes, debt helps to keep out economy moving but to make sure not to fall in default debt should take the proper measurement of return the debt on time.

The Importance of debt in Economy: Investment: Many economists believe that rising debt is not a problem because people will invest, and others are saying it will make less interest for the investors. Employment: Economists like to believe that debt creates jobs but when we will have less production due to skills, the technology we will get behind to pay the debt. Social benefits: The US debt money has been using for social benefit as government expenditure such as Medicaid benefit, food stamp, unemployment benefits and many more. All of them help to increase social welfare.

Conclusion Debt sustainability is vital for the economy. We do need debt for a short-run to keep moving our economic activities but also need to make sure we need to return the money on time so that there will be less chance to fall in debt default in long-run which may cause a threat for our national security. Sustainable development work can maintain debt sustainability. Creating jobs opportunity, build the educational institute, etc. will help to maintain the debt sustainability for the U.S.