National Debt

The question has been posed with reference to the national debt, "Why did we borrow the funds in the first place?"

Data on the national debt demonstrates that as a country, we have been in debt since 1790, so it's definitely not a new concept.

National debt accumulates when the government needs to finance a project that it simply does not have the capital to support. One excellent example of this is war, specifically World War II. Overall, World War II cost the US government hundreds of billions of dollars in material resources, research, weapons, war machines, and food. The national debt in 1940 was $43 billion, while in 1945 it was $259 billion - quite a large increase in such a short span of time.

The government, unfortunately, just didn't have a couple hundred billion dollars lying around, so they had to borrow - and they did this by selling war bonds. Whenever anyone bought a war bond, they were loaning the government money (say $100), with the promise that the government would eventually pay them back with interest. People in general consider US bonds to be trustworthy, so they are inclined to purchase them; we have such a strong economy in comparison to many other countries that it is very unlikely that our government would ever default on its payments.

So debt is incurred to help the US raise capital for various projects. What this allows for is the kind of explosive growth that the United States has experienced during its evolution. When capital is widely available for investment and speculation, companies are able to take greater risks and reap greater rewards.

The "problem" that the US government runs into is that it seems to be a permanent debtor. While budget surpluses have occurred on rare occasions in any one individual year, the overall trend of the national debt is that of enormous increase. Borrowing all this money certainly helps our country in that it finances necessary projects, but it is important to keep in mind that every dollar we borrow is accruing interest in somebody's pocket. Many people feel as though the national debt is becoming too much of a burden already - that the interest we owe annually on our $8 trillion loan will overcome our ability to pay it, and the US government will go bankrupt.

An examination of the Treasury Bulletin indicates to us that about 40% of the debt is held by "Gvoernment Accounts", whereas 60% of the debt is held by public investors.
Government accounts are things like trust funds - for example, the Highway Trust Fund, or the Bank Insurance Fund. The public investors are mostly regular US citizens or organizations of citizens (mutual funds); only a very small percentage of debt-holders are foreign investors.

So the reality of the situation is that we really do owe the debt to ourself - the vast majority of the $8 billion has been given to the government by the US population. People argue that the debt needs to be decreased or else we will face certain doom, but I think this is inaccurate. The market is self-regulatory in that when people believe the US can no longer pay its debts, they will stop lending money. I could compare the US government to a pigeon at the park - if you feed it, it will keep coming back; similarly, if we feed the government funds, it will continue to borrow as long as it can "get away with it".