ABSTRACT
This chapter discusses the debt of the US national government, traces its history, compares it to the debt of other nations, and examines theoretical and empirical analyses of its impacts. Federal debt is measured in several ways. The components of the debt are: gross debt, which includes all federal debt outstanding, and debt held by the public. The debt held by the public reflects cumulative federal government borrowing and excludes debt holdings of trust funds, such as Social Security. The rapidly growing federal debt together with high and volatile interest rates caused federal government net interest costs to rise rapidly in the 1980s. Economists disagree about the importance of the costs of the debt and deficits. The English economist John Maynard Keynes turned conventional economics upside down with his theories in the 1930s. Many economists argue that deficits and the debt pose a danger of crowding out private sector borrowers and investors.
