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The national debt is a critical factor that indicates the prosperity of each country. It represents the sum of all yearly deficits after deducting the surplus. In this case, the deficit represents the annual shortfall comprising of borrowing. For this reason, it raises an alarm concerning the level of debt that a country should perceive as tolerable. When evaluating the amount of debt that a country should withstand, economic values that reflect its general economic performance and position are vital. Some of these values include the inflation and interest rates, and poor performance. These factors affect the level of debt of a country that can be compared to other countries (Avramovic%u0301 24). In addition, the passage of time provides different projection of the tolerable level of debts. Therefore, a country should determine the level of debt that it can withstand to ensure that its undertakings facilitate economic prosperity.
The level of debt affects the general economic growth and development of a country over a certain period. Initially, countries have experienced varied degrees of debt, since the outbreak of world wars in the 20th century. Consequently, these countries have witnessed varying economic challenges. During this moment, industrialized countries invested more on the war with the available resources inclusive of debt. During the war, most countries could not engage in deadly vices deviating from the economic focus. Based on this consideration, countries encountered economic constrains, as they could not generate sufficient funds for use in covering expenses. In this case, the percentage of GDP in most countries increased on average to five percent (Pettifor and Janet 52). When the debt increased, the level of inflation increased too, and this worsened conditions of the war. In spite of the unprepared consequences of the First World War, effects of debt were manageable during the Second World War.
When the inflation rate is high within a country, level of debt fluctuates, which might reach intolerable levels. Therefore, for a country to evaluate the tolerable level of debt, it must control the level of inflation. In this case, when a country adopts appropriate means of curbing inflation, it can manage its level of debt. It is appropriate that the holding of an appropriate level of debt that a country can finance without exhausting its financial resources to be ideal. The national debt of the US illustrates this scenario. According to the latest national debt reports, analysts anticipate the national debt to double from $7.6 trillion to $14.3 trillion by 2019. Similarly, the congressional budget office has indicated that the country’s GDP will rise by 67.8 percent from the current 41.8 percent by 2019 (Avramovic%u0301 95). This implies that radical measures are crucial to control the level of debt.
Similarly, the level of debt is not only attributed to inflationary causes, but also interest rates. The rise in interest rates further worsens conditions of debt among countries. Concerning the aftermath of the world war, the level of interest witnessed due to retaliatory conditions rose increasing debt levels. In this regard, interest rates have continuously affected the desired level of debt that a country should accept. In this case, when the interest rates are high, the expected level of returns from debt issuers usually rises. This affects a country’s economic performance and triggers other unwanted outcomes for the country. For a country to manage its level of debt, it must control the interest rate levels attributable to its internal debt with other countries. In this case, it is considerably difficult to ascertain the country’s debt unless when the country can no longer meet its obligation of interest payment.
Another critical area in which a country’s level of debt reflects is the fluctuation of dollar in the market. In this regard, the level of debt depends on the performance of the dollar in the international market. When the performance of the international market is satisfactory, the debt has a positive impact on the economic growth of a country. On the other hand, when the performance of the dollar is poor, level of debt within the country requires regulation to mitigate it severe impacts on country’s economic activities. Some of the most critical activities that require consideration are reserves kept by the central bank and the balance of payments. When the reserve is significant, the central bank could regulate the level of debt within the country against its creditors (Todaro and Stephen 61).
The evaluation of adversity of the debt to a country’s economic activities can be analyzed on the micro level based on effects of the debt on people. The level of debt on people reflects on their purchasing capabilities. In this case, the people’s consumption level indicates their capabilities to meet their obligations. In addition, the level of expenditure of people in a country reflects the need to control their level of debt, which contributes to the national income. This implies that when the level of debt among individuals exceeds 40 percent, chances of exposure to financial distress increase. Additionally, the level of the disposal income of individuals influences the level of debt attributed to citizens of the country. Therefore, the nature of debt affects a country on the aggregate.
After evaluating causes of the variation of the level of debt, it is possible to determine the appropriate debt that a country should maintain. In this case, the level of debt within a country should not to exceed 30 percent of the total GDP of the country as to affect its economic activities. This constrain enables a country to focus on the need for economic growth and development. In addition, utilization of considerate debt steers economic growth. This implies that, although the high level of debt could affect the economic growth, a country could use it measurably to stimulate the economic development. In this case, the balance of payments is a consideration, since it influences the surplus and deficit. Meanwhile, a country would be able to manage the interest attributed to debt. For a country to evaluate the desirable debt, other economic factors like inflation rates, interest rates and foreign exchange rates require consideration. In this regard, the most influential market performance, such as the financial market determines the expected desirable debt.
On the personal level, one’s expenditures should control the level of debt. In this case, the level of debt is considered high, when it exceeds 40 percent of the income. Nevertheless, the level of debt could be beneficial, if it is used for the purpose of investment to generate high returns. Therefore, citizens should maintain their debt below 40 percent. This implies that they will be able to service the outstanding obligations as expected (Todaro and Stephen 96). In this regard, citizens would be able to engage in various economic activities without affecting their financial stability.
Generally, a country should regulate its level of debt within the desired level strategized by policymakers to ensure growth in various aspects, such as the economy. The central bank can regulated some of the most critical factors, such as inflation rates, interest rates and local currency. Through this initiative, the government would control the level of debt within measurable levels. This implies that the level of debt will be tolerable.