Torch, Spring/Summer 2009

16 TORCH | Spring–Summer 2009 several decades of excessive government regulation in the economy. Today’s recession is less than one-third the magnitude of the Great Depression. Without historical precedent, basic economic principles should be the guide for easing the effects of the current economic downturn. Today’s problems cannot be “solved” by government. Rather, the government should equitably set forth the “rules of the game” for maximum economic growth and allow the private sector to pull the economy out of recession into a period of abundant growth. How much will the government’s focus on economic problems detract from issues like health care, Social Security, or the war? The scope of our economic problems will likely crowd out other political concerns, at least from the perspective of voters and the media. However, Congress will realize it has to deal with these other problems, too. Ultimately, the issue will be one of resources. Because of the massive nature of government spending intended to boost the economy, there will naturally be less resources devoted to other needs. In this sense, the economic situation will limit the number of ways Congress can address other matters. Explain what “national debt” actually refers to and how it contributes to the financial crisis. Where does it come from and who is ultimately responsible to pay it off? The national debt consists of all debt accrued during the years in which the government spent more money than it took in through tax revenues. Thus, adding all these dollar deficits together constitutes the amount of the national debt of the United States. This debt must be covered in the same way that individuals would cover overspending. In this sense, public debt is similar to private debt in that borrowing is required to make up the deficiency. The government borrows this money by selling treasury bonds, treasury notes, and treasury bills. In the past, some of us may have even purchased a treasury or EE savings bond. Thus, in a real sense, we were lending the government money. These bills, notes, and bonds have to be paid back. Bills mature in less than one year, notes in one to 10 years, and bonds usually in 20 or more years. This is why it is often said that our children and grandchildren will be responsible to pay back the national debt and the current bailout money. To what extent does the United States’ financial health affect the global economy? The United States’ financial health has an enormous effect on the global economy. While we consistently run a trade deficit, we also purchase a very significant amount of other nations’ ALEX SLOBODKIN / ISTOCKPHOTO