Research On The Evolvement, Risk And Sustainability Of U.S. Government Debt

The global financial crisis of2008led to the debt crisis among the developedcountries. Greece fell down first, followed by Ireland, Portugal, Italy and Spain, whichrevealed the financial fragility of the developed countries and aroused widespreadattention. Although the United States didn’t encounter the debt crisis as the Euro zonecountries, the U.S. government debt has kept reaching the new high levels and the debtupper limit has been adjusted frequently. The debt dispute has escalated that hasincreased the concern of the world about U.S. debt. As the baby boomers are retiring, thefiscal expenditure will experience enormous pressure that will become a long-termchallenge to the U.S. government debt. What is the debt risk of the U.S.? Is the U.S.government debt sustainable? How government can lower the debt levels? Given thestrong international status of America, all these questions will not only influence theworld economy, but also have a significant impact on China. This dissertation tries toanswer these questions.From the open macroeconomics perspective, this paper analyzes the evolvement ofthe U.S. government debt by using theoretical and empirical method, as well as historicaland comparative analysis method, studies the risk and sustainability of the U.S.government debt through empirical data, tries to reveal the future development of thegovernment debt, and examined the debt consolidation and its spillover effects.This dissertation consists of eight chaptersChapter1-introduction. This chapter introduces the background and significance ofthe research, and illustrates the research method, possible innovation and the dissertationstructure based on the understanding of the research on the debt theory and the UnitedStates government debt problems..Chapter2-the relevant theories of government debt. Firstly this chapter introducesthe risk of expanding government debt; then it elaborates the government budgetconstraint theory; lastly it analyzes the spillover effect of government debt under theopen condition.Chapter3-the involvement of the U.S. government debt. This chapter studies the relationship between the changes of U.S. government debt and the economic thoughtsfrom the long term debt data from1790to2013. It focuses on analyzing the trend ofcontinuous expansion of U.S. government debt during new liberalism phase, and furtheranalyzing the new characteristics of the U.S. government debt since the global financialcrisis. This chapter provides an important background and realistic foundation for furtherresearch on risk and sustainability of U.S. government.Chapter4-the risk if the U.S. government debt continues to expand. This chapterdiscusses the reason why the U.S. government debt continues to expand since the newcentury, elaborating the risk to the U.S. economy in economic growth, inflation and debtcrisis if debt continues to expand, which will also affects the international currency statusof the US dollar and slows the economic growth of the world.Chapter5-the influence factors of the U.S. government debt sustainability. Thischapter analyzes the factors that affect the U.S. government debt sustainability based onthe government budget constraint theory, including primary fiscal deficit, economicgrowth and international economic environment.Chapter6-the empirical analysis of the U.S. government debt sustainability. Thischapter mainly studies the U.S. government debt sustainability from two aspects. On onehand, this chapter builds the fiscal response function to empirically test the Americangovernment debt sustainability based on the theory of the government budget constraint;On the other hand, it forecasts the tendency of the United States government debt basedon the analysis of the influence factors.Chapter7-the adjustment and spillover effects for the sustainable development ofthe U.S. government debt. To ensure the sustainable development of the debt in the U.S.,the government must take measures to lower debt levels. The measures mainly includefiscal consolidation, financial repression and ensuring the strong currency status of USdollar, and these measures will also produce spillover effect on the world economy fromtrade, financial and commodity price linkages.Chapter8-the U.S. government debt with China. This chapter analyzes the U.S.government debt held by China and emphasizes the impact of these measures on China’seconomy, followed by putting forward related suggestions.Through research, the following conclusions can be drawn: Firstly, the U.S. government debt has expanded since the1980s, especially after thenew century, and has kept setting the record high since the global financial crisis. It lookslike that fiscal deficits and the decline in economic growth led to the rapid growth of debt.But it is the different concepts of the ruling parties and the different economic thoughtsthat they adhere to that caused the issue. It’s predicted that the U.S. government debt willcontinue to grow, which not only slows down the US economy, rises inflation and evenincreases the risk of debt crisis, but also deeply affects the international currency status ofthe US dollar, and slows down the world economic growth.Secondly, the dissertation uses empirical method to test the U.S. government debtsustainability based on the theory of the government budget constraint by using fiscalresponse function, which concludes that the U.S. government debt can sustain. Butconsidering the factors of unemployment, the adjustment of fiscal policy effect will becompromised. Therefore, the sustainability of the debt will be weakened. Furthermore,the forecast on the tendency of U.S. debt shows the future of the government debt is notoptimistic. This means that the US government not only needs to use fiscal policy tolower the debt levels, but also takes a variety of measures including financial repressionand depreciation of U.S. dollar.Finally, as the world’s largest economy, the U.S. fiscal and monetary policy willhave a significant spillover effects on the world economy. The U.S. fiscal consolidationand depreciation will reduce other countries’ export through trade channels, thusinfluence their national output. The United States financial repression can reduce othercountries’ foreign exchange reserve, result in capital frequent flow and challenge othercountries’ monetary policy, which will form a wide range of "financial repression". Thedollar depreciation will also make other countries face inflation through price channel,especially the emerging economies. Similarly, the measures that the U.S. governmentwill take to lower the debt levels will influence on China’s trade, foreign exchangereserve, capital flows and monetary policy. Therefore, the Chinese government shouldadjust the economic structure in time to reduce the loss brought by the U.S. governmentdebt.