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the United States is the number-one economy in the world this has been the status quo for more than half a century and while it is a symbolic country of capitalism it is haunted by its great national debt that can be a complex issue to understand which involves Treasury bonds deposits domestic debt and so on which is why I will try to explain this in the simplest and most practical way possible the level of the national debt of the United States is a measure that establishes how much the US government owes to its creditors since the American government almost always spends more than it receives the national debt continues to rise steadily as of the 3rd of January 2019 the u.s. national debt was at 21 point 97 trillion US dollars according to the United States Treasury it has risen 10% since President Trump took office in January 2017 under President Obama the national debt increased by a hundred percent from 10 trillion u.s. dollars the 20 trillion u.s. dollars while the GDP barely increased by 15 percent so for the second time in history after World War 2 the u.s. national debt is higher than its gross domestic product surpassing the threshold of a hundred percent of GDP in short the u.s. owes more than it produces most other developed nations only have a national debt ranging from sixty to eighty percent of their GDP although this is not a rule it's the general norm for most developed nations but what extent is this dangerous for the US and other nations in general does this risk the global economy as much as it does the United States this is what we'll explore today let's begin a government can only spend what they have as budget any more than this than they would have to borrow in order for the government to continue operating in this case the Treasury must issue letters notes and bonds to make up the difference finance its excess spending through loans including domestic and foreign investors as well as corporations banks and even other government in other words by issuing these types of securities the federal government can acquire the cash needed to provide government services depending on the reputation of the government of the country in question banks around the world can offer the government money in exchange for loans generally the better the country's credit reputation the lower the interest rates and the more flexible to loan in general the public always prefers to lend to the United States than to Venezuela for example the u.s. pays their debts well and it's virtually impossible for them to fail in its debt this is known as default the surplus spending of the American government every year is called a deficit and therefore these deficits have been accumulating over decades regardless of who's been the president the national debt always continues to increase because the American government continues to spend more than they earn with in US law there is limit known as a debt ceiling in which a legal limit is set and doesn't allow the government to spend beyond this point when the debt ceiling is approaching Congress usually has to agree to raise the debt ceiling and allow the government to borrow more if Congress doesn't approve of it the government could be potentially shut down the us constantly raises the debt ceiling a situation that has become the norm because if the country doesn't keep borrowing it will not function a large part of the national debt of a country in this case of the United States it comes from other entities such as Social Security or even from other federal departments known as intragovernmental debt and although the same government being in debt with itself seems paradoxical this is the case with most countries around the world from their other governments especially countries with strong economies can lend money to each other this is the case with the u.s. debt we're the largest external creditor of the u.s. is China which owns approximately 9% of US debt or a total of 2 trillion dollars followed by Japan with 8 percent or 1.8 trillion dollars but if we talk strictly about the u.s. debt that belongs to a foreign power this represents 30% of the total debt and China owns 25% of it for a long time the speculated that China could break the us by charging the debt at any moment this would not be the case however although China owns a large amount of this debt collecting the debt doesn't necessarily sink the u.s. into bankruptcy it should be noted that China like the u.s. is also a highly indebted country with the national debt close to 50% of the Chinese GDP charging the debt to the US would only trigger a reciprocal action if the US also owns some of the Chinese debt in the instance of Japan the debt had already reached 220 percent of their GDP doubling their entire economy this is a very dangerous case since the population of Japan is already steadily decreasing every single year the GDP per capita of the u.s. is one of the highest in the world currently at around 59 thousand US dollars however the debt per capita of an average American is at around 61 thousand dollars higher than the GDP per capita so does this mean that the u.s. citizens owe more money than they have technically yes but in practice there is no payment to make of the 61 thousand dollars that each US citizen owes at least 40,000 of those dollars is owed to the government and the other 20,000 to foreign countries of which China would take five thousand dollars in Japan four thousand technically while the US continues to pay their debts on time there would be no problem even if the debt continues to accumulate the problem is that many economists argue that an economic model where the government continues to live on deficits is not sustainable over time even if the US is the number one economy on the planet it is still dangerous to reach 200 250 or even three hundred and fifty percent debt with respect to the GDP there are multiple rich and developed nations that do not have such a colossal debt as an asterisk to their GDP take Luxembourg for example its debt is under 30 percent of its GDP New Zealand with 26 percent or even Russia with 10 percent however Russia is a special case that we will further delve into in another video since Russia has their pockets lined with gas and oil the US has a serious spending problem especially considering that more than a quarter of the federal budget goes into the US military the current US debt exceeds 21 trillion dollars and it is by far the largest in the world it has increased another billion dollars on average every single year since 2007 the debt grew despite threats from Congress to not raise the debt ceiling in 2011 the American debt crisis almost forced the u.s. to not pay their debts in 2012 the fiscal cliff crisis almost halted the government and in 2013 the US government shut down for 15 days since these attempts by Congress did not work what can and should be done essentially there are three ways to reduce the debt and save the u.s. from bankruptcy first cut costs the fiscal ceiling tried to force the government to cut discretionary spending by 10 percent no one in Congress thought that this was a good idea even with the fiscal ceiling the debt continued to grow to really reduce debt Congress would have to cut spending so severely that it would slow down economic growth this is because government spending is a very important component of the GDP it is the most important actor in the economy as it is the one that spends the most if the government spends less there will be less money circulating in the economy secondly increased taxes the problem is the tax rate is enough to curb incentives to grow businesses and income the third option is to boost economic growth at a faster rate than debt and economic growth that exceeds the percentage of growth of the debt would allow the reducing of the ratio between debt and GDP but the problem is the government doesn't agree on how to grow the economy most Democrats will say that higher spending works better while the majority of Republicans say that lower taxes will drive more growth both taxes will definitely increase debt possibly more than the GDP but there is another solution Congress which approves the budget should change spending to the areas that generate more jobs research shows that spending on bridges roads and public buildings generates the highest number of jobs per dollar the next best thing is to spend on education nearly 25% of government spending goes to the military contrary to popular belief that is not the economic boost that World War two had instead it's due to the fact that during the war the state invested more in technology and equipment so to reduce debt the government should instead shift spending from public defense to spending more in public infrastructure and education this is one of the best ways to structurally create more jobs for the future and in turn grow the economy the u.s. owes more than a hundred percent of its GDP a situation that previously happened during World War two today there's no Great War but the continuing and eternal military campaigns in Afghanistan Pakistan Iraq Syria and other military outbreaks had cost the country more than five trillion dollars President Trump was very vocal about this issue and it is one of his most agreeable points when he states that the money squandered in the Middle East by destabilizing countries could have been the money used to fund infrastructure and education this is the step that the White House and Congress must take in order to ally slow down the growth of its national debt most creditors do not typically worry until the sovereign debt exceeds 77 percent of the GDP according to the World Bank in the case of the u.s. that limit was reached years ago the only way that the u.s. can reduce its debt is if the American people begin to accept austerity measures the most painless time to do this is when the economy is expanding that is when the GDP growth rate is above 3% and unemployment is less than 5% although in doing so it could possibly cause a recession reducing debt will not be easy and there are many economic and political points of views both on the Republican and Democratic side both perspectives are valid and there is no 100 percent correct answer but one thing is for sure if the u.s. does not reduce its debt sooner or later Congress will increase the tax ceiling if this happens the u.s. could face a sovereign default and enter bankruptcy but this would be the most extreme possibility so what do you think about the sovereign death of the United States what do you think could be an appropriate measure in order to reduce the national debt and could the u.s. go bankrupt let us know in the comments below and don't forget to subscribe if you haven't already see you next time you