Explain why the portion of the national debt owed to foreign

Explain why the portion of the national debt owed to foreigners is a serious matter, whereas the portion owed to U.S. citizens is of less concern. Why does the U.S. national debt pose less of a problem than the debts of Greece in 2010?

Solution

Ans

National debt owed to foreigners means resources flow out from country while as domestic debt means resources remain within economy. Also domestic debt doesn\'t led to exchange rate fluctuations of magnitude as happens in case of foreign debt. Domestic debt is at most is transfer of resources from one person to other I. E from tax payers to bond holder\'s. Even in future generations we find both debt holders and tax payers such that it is not even burden on future generation as is often misquoted.

The reasons are that usa economy is strong and growing. Usa can meet its debt obligations because of its productive capacity. Also in Greece Govt contributes to around 52% of Gdp while as in usa it is just 20.5%.further majority of USA debt is hold by domestic citizens. Usa also faces low borrowing rates while as for Greece cost of debt was quite hight. Usa can print dollars but Greece can\'t print Euros. Usa controls its monetary policy but Greece doesn\'t. Greece debt was 177% of their Gdp while as usa debt is almost only 100% of Gdp.