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What Is the Federal Debt?

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  • Written By: Desi C.
  • Edited By: C. Wilborn
  • Last Modified Date: 26 June 2014
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The federal debt is the amount of money that a nation with a federal government, such as the US, owes. When debt accrues over several years, it is often referred to as a "deficit," which is the amount of money the government spends beyond what it collects. In such cases, federal debt is measured on a yearly basis.

The causes of federal debt can vary, but usually stem from overspending by the government and borrowing though bonds. Bonds are written to raise money to fund government spending, and as a result the government owes money to bond holders, who gain interest on bonds over specific periods of time. In the simplest terms, a bond is a promise to pay a debt with interest at a given time, often ten years from the date the bond is issued.

In many nations, including the US, federal debt can be a hot topic during political races, especially presidential campaigns. Debt has a negative connotation to it, and many people have strong opinions on how to remedy their nation's debt. The debt acquired by the government is not necessarily bad debt, however.

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Many federal governments issue loans and grants to individuals, companies, and even non-profit organizations. Although this might contribute to the federal debt, a return in investment on the money spent is expected. For example, student loans are common in the US, and although the government spends a great deal of money to fund student loan programs, it is known that the amount of interest earned on the loans will be worth the investment in the long run.

One solution that is often proposed to erase, or at least lower, the federal debt is to raise federal taxes on individuals and companies. Many economists believe, however, that raising taxes would likely result in less money being pumped back in to the economy by consumers, which would have a negative effect on businesses. This could result in a situation where the government has to spend more on social programs to help businesses and citizens who are effected the most by higher taxes.

Federal debt can be complicated by many factors, including the state of the world economy. Nearly all countries have some level of debt, whether it is owed to its own citizens or externally. It is a topic of study for scholars and analysts, and often central to federal elections and campaigns.

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