The National Debt and How It Has Affected Individual Finances

National debt in the USA has been increasing significantly in the past few years and has now reached a massive $16 trillion. I was just thinking how this national debt has a direct impact on personal finances and many citizens of the country have faced severe consequences as a result of rising national debt.

I figured that the national debt results in certain economic indicators which in turn affects the consumer disposable income and the impact on personal finances as a result of accelerating national debt is largely negative. I know it has affected my life and it probably will show more affects in the years to come.

Although the US currently has low levels of interest, the rise in national debt is likely to create an upward pressure on the interest rates which would have a direct impact on the cost of living for an average person. USA is already on the verge of reaching its debt ceiling and in order to attract more investors to buy its treasury bills, it would need to increase the interest rates.

The rise in interest rates would raise the cost of servicing debt for corporations which would in turn raise the cost of goods and services for people like you and me. The rise in national debt over the period of time also casts a doubt on the ability of the country to repay the debt and this reduces the credit ratings.

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The decline in credit ratings can impact the currency value negatively and this would in turn increase the cost of imported goods and services thereby once again reducing the purchasing power of consumers–like you and me.

The rise in the interest rate  would impact the inter-bank interest rate and thus the cost of mortgages and car loan will increase substantially which means that an average citizen, like you and me, would not be able to afford the luxury of a house or a car, or at least to the same deree that we can now.

The rise in the interest rate also means that most of the government budget would be allocated in servicing of debt and this would lower the amount available for expenditure of public welfare. More people are likely to experience a decline in standard of living over the period of time.

Low levels of government spending would result in slower economic growth which would also dampen the job market and result in higher levels of unemployment.

Furthermore, the government is likely to increas taxes in order to generate funds for repayment of debt. The increase in taxes will bring about a decrease in the consumer disposable income which will in turn lower the cost of living for an average citizen.

I think that the rise in national debt over the period of time has not yet shown its full effects in the economy. This is because the government has been employing stringent measures that are designed to prevent the impact of debt ceiling to impact the public at large.

However, the free market mechanism cannot be prevented for a long period of time and sooner or later the economy’s bubble would burst. Citizens like you and me that survive on monthly income would experience a rise in the cost of living and higher taxes which would erode purchasing power and therefore reduce the standard of living.

Do you also think that national debt has a negative impact on our personal finance? In what ways?

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