The Sustainability Of Public Debt In The United States

In2007, the real estate bubble burst as the fuse of subprime crisis in the United States。In this year, Fannie and Freddie were nationalized by the administration, Lehman brothers went bankrupt,and Morgan Stanley, Goldman Sachs was forced into commercial banks, in5big investment banks as the representative of the American financial system were seriously affected.In the fourth quarter of2008, Europe, emerging market countries gradually felt the chill with the American subprime crisis spread to the world, deteriorated into the economic crisis. In order to save the united states’ economy, government has launched a series of economic stimulus plans.Under the situation,the United States budget deficit surged, with＄162.8billion in2007, and reached＄12.94trillion,in the four years, the budget deficit increased nearly10times.Obviously,the series off rescue strategy mean huge fiscal deficit gap in United states. With this circumstance,the government has to issue public debts to meet the government expenditures. Consequently,public debts reached＄13.56trillions in2010, and debt scale once was close to the legal limit of＄14.294trillions.whether to raise the United States public debt ceiling,the United States National Republican and democratic parties was not easy to reach a consensus. The fierce controversy between GOP and democratic parity draw world’s attention to debt paying ability of United States and worried about depreciation of dollar capitals.In August5th of2011, the international ratings agency Fitch decided to reduce Treasury credit level of United States from AAA to AA+,which led the world into worry. Treasury bonds held by China account for8%, which makes China the largest holder of the United States Treasury holders overseas. Facing issues of public debts ceaselessly,and the doubt about debt paying ability of United States, how to have a correct understanding of1/3of China’s foreign exchange reserves, as well as how to maintain value or appreciation of dollar capitals. It is a really problem for China.Based on the Intertemporal Budget Constraint model, along with the use of the Intertemporal Budget Constraint and Transversality Condition, the paper reaches the conclusion that the US government can keep the current scale for its public debt. The paper is made up of six chapters. The first chapter is the introduction,including research background, research significance,and research objects and methods,etc. The second chapter is Literature Review, summarized research results and conclusion from domestic and foreign scholars on the sustainability of public debt. And the third chapter introduces the history of issuance of public debt and current situation. Based on the analysis before,the fourth chapter introduced intergenerational budget constraint model established by Bohn(2005) as foundation to analysis the sustainability of public debts in US. The next chapter considers Intertemporal Budget Constraint and tests Transversality Condition through the empirical study,finding that in the case of economic dynamic efficiency, public debt is sustainable.Combined with the empirical outcome,the last chapter make a conclusion and give some relative advices.In addition, there are some creations in the paper. First, I mainly uses the quantitative analysis method to recognize the United States debt instead of qualitative analysis taken by domestic scholars. Second, as for samples, I select variables from1960to2010which make outcome of quantitative analysis more reliable and accurate. Third,different from using military expenditure as the proxy variable of government expenditure.the government spending is directly incorporated into the model,and I add a new variable into the feedback equation.which make the model more realistic. Last but not least,this paper test the dynamic efficiency in uncertain economy,which avoid discussing the phenomenon that the average economic growth rate is greater than the average long-term interest rate. It makes the research comprehensive.Of course, this article has many disadvantages, such as the research model mainly based on the Bohn’s research;as for the hypothesis premise of the model, I don’t master it well.and fail to establish an svstemic framework.etc.