U.S. national debt sets another record – 9.815 trillion dollars

The national debt of the United States of America exceeded the number of nine trillion dollars for the first time in history, the U.S. Treasury said. Treasury Secretary Henry Paulson told congressmen in the middle of September that the federal government would reach the legal limit of the national debt on October 1 – 8 trillion 965 billion dollars. The government would thus find itself in a state of technical default on its obligations, Paulson added.

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Henry Paulson urged the Congress to pass the bill increasing the limit of the national debt. The U.S. lawmakers followed the advice last month and approved the new limit – 9.815 trillion dollars.

It was the fifth time during George W. Bush’s presidency when the Congress raised the limit of the national debt – in the total of 3.865 trillion dollars.

The U.S. Democratic opposition believes that the ongoing increase of the country’s debt testifies to poor financial policies run by the current U.S. administration. The White House explains its requests with the need to fund the wars in Afghanistan and Iraq and other conditions required for the national security.

The national debt of the United States reached the level of one trillion dollars during Ronald Reagan’s presidency in the 1980s. Nowadays, each American holds about 33,000 dollars of the national debt, ITAR-TASS reports.

When the expenses of the U.S. Government exceed the revenue collected, it issues new debt to cover the deficit. This debt typically takes the form of new issues of government bonds which are sold on the open market. However, the debt can also be monetized by which the Federal Reserve creates an entry on its books to credit the US Government for an amount equal to the dollar/">dollar amount of the bonds the Federal Reserve is acquiring. The money created in this process not only includes the new dollars that came into existence just to purchase the bonds, but much more because this new money is now sitting in the form of checkbook money at the Federal Reserve. Under the scheme of Fractional Reserve Banking this new checkbook money is treated as an asset to lend against. Economists estimate the expansion of the money supply as being many times the amount of the initial money created with the exact amount of the expansion being a function of the marginal propensity of the consumer to consume (rather than save) each new dollar.

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