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National Debt Hits $20 Trillion- But What Does This Mean?

National Debt Hits $20 Trillion- But What Does This Mean? Read Transcript

NARRATOR: The national debt is now at $20 trillion.

But, what does that mean?

Where is this money going, what is it buying,

and why aren't we paying it off?

So what is national debt?

Well, the national debt is the amount

of money owed by the federal government.

How does this debt happen?

Well, while there are some technical differences

between the federal government's budget

and a standard checkbook, debt is accumulated pretty much

the same way, when the spending dwarfs the earnings.

Problem is, especially in Congress,

the spending has definitely been dwarfing the earnings.

That's a big part of the problem.


SENATOR COBURN: So I think we ought to tear it up.

And the way we tear it up, is we just tear it up.

We tear the credit card up.

You're going to live within your means.

You're going to start making the hard choices.

NARRATOR: So where is this money going?

Well, there's two primary outputs of government funding,

mandatory and discretionary.

Here's the difference.

Mandatory spending makes up about 60% or so

of the federal budget.

It includes programs that, by law, have to be funded.

Primary programs include things like social security, Medicare.

Those two programs alone amount to over 40%

of the mandatory component of the national budget.

Discretionary spending, on the other hand,

means, well you know what, we might spend a little more,

a little less of this.

For example, certain departments in government, like the DOD,

in other words, the Department of Defense, health and Human

Services the Department of Education,

the Department of Homeland Security, the Justice

Department, and on and on it goes.

NASA, lots of other ones.

So why aren't we paying off the debt, exactly?

Well, it's not that we're not paying it off,

it's that we're actually accumulating more.

We're making our payments, but interest

creates more of a burden.

And the more debut we accumulate,

the more interest we accumulate, and so the cycle

goes on and on.

As matter of fact, the interest now, about 6%.

All right, so how can we pay it off?

Well, that's a subjective answer,

so we're going to explore some options.

Now, the first option is to cut spending,

and use the trimmed fiscal fat to pay off the debt.

But, then whoever gets cut will argue

that cutting spending invests less into the economy, which

can hurt the economy.

So the second option is to leave spending alone, but increase

taxes, and use the increased tax revenue to pay off debt.

But then, people will argue that they'll have less money

to invest into the economy, which can, that's right,

hurt the economy.

A third option is to cut taxes, which

would allow some citizens to have more money

to invest in the economy.

And some argue that it would reduce

the amount of tax revenue going to the major government run


And then there's the fourth option.

That's just to leave spending and taxes alone.

Simply print more money to pay off the debt.

However, when more money exists, in contrast

to what is responsibly used, inflation kicks in.

The dollar loses value.

Now, it may bring instant gratification,

but reckless inflation can have severe economic ramifications

for the generations to follow.

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