	Background

The United States, from its beginning in 1790 to the present, has been free of a national debt for only two years, 1834 and 1835. The national debt reached a high of 108.6% of GDP in 1946. The large budget deficits of the 1980s and 1990s reversed this trend and pushed the percentage to another high of 49.5% in 1993. The federal budget surpluses from FY1998 to FY2001 were used to retire a portion of the publicly held national debt. In common with other major countries, the United States has rarely financed the surge in wartime expenditures exclusively by raising taxes. Interestingly, mainstream macroeconomics views the burden of a national debt, not in terms of the debt per se, but in terms of government budget deficits that are the cause of the debt and its growth. In a fully employed economy, in addition to raising prices, the increase in demand will lead to a rise in interest rates. This is primarily business spending for capital goods such as plant, equipment, and structures and spending by households for homes, automobiles, appliances and the like. Thus, the budget deficit "crowds out" private capital and the burden of the growing national debt represented by the bonds issued to finance the war, is the decrease in the private capital stock of the country. Since the private capital stock inherited by future generations will be smaller, it implies that the level of output enjoyed by them will be lower. Rather than borrowing the wherewithal it could simply print money (currency) and pay its bills. The majority of that spending, however, is likely to be on current consumption. This encourages (or "crowds in") interest-sensitive spending. Retiring debt that is foreign owned relieves the United States from having to pay interest to foreigners. Conclusion

The current consensus view among economists is that the source of the burden associated with a national debt is the government budget deficit that gives rise to the debt. And, it is a burden that is largely shifted forwarded to future generations. Selective Views on the Burden of a National Debt
Although economists have long recognized that a national debt imposes an inescapable burden on a nation, they have argued about who bears this burden. In particular, whether the burden is borne by the generation that incurred the debt or whether it is shifted forward to a future generation or, in the language of the time, whether it is a "burden or mortgage on our children." The "We Owe It To Ourselves" View
As a result of the concern over whether the enjoyment of full employment by the current generation would shift a burden to the future, it became an accepted view during the 1930s, 40s, and 50s, that an internally held national debt would impose a burden only on the generation present when it was contracted and would impose no burden on future generations because we "owe the debt to ourselves." It is not borne by the generation who contracted the debt.
The United States has been free of a national debt for only two years, 1834 and 1835. In its first year, 1790, the country faced a debt of $75 million. From FY1998 to FY2001, the federal government ran budget surpluses. Since then, the budget has returned to deficit, and the debt had risen to $7.5 trillion by 2009. It rose to a high of 108.6% of gross domestic product (GDP) at the end of World War II; declined to a post-World War II low of 23.8% of GDP in 1974; and, then, rose to another high of 49.5% of GDP in 1993.
The national debt results from borrowing to finance budget deficits. Historically, the major cause of debt accumulation has been war. The United States has financed the extraordinary expenditures associated with war by borrowing rather than by raising taxes or printing money. This pattern was broken by the large budget deficits of the 1980s, the first half of the 1990s, and the period subsequent to 2001, which caused the national debt to rise substantially as a fraction of GDP.
Although economists have long recognized that a national debt imposes an inescapable burden on a nation, they have debated whether the burden is borne by the generation who contracts the debt or is shifted forward to future generations. There has also been some controversy over the nature of the burden.
The current consensus among economists is that the burden of the national debt is largely shifted forward to future generations. However, the burden imposed by the national debt does not arise from debt per se, but from budget deficits that gives rise to a national debt. If an economy is fully employed and the government increases its expenditures, for example, the resultant increase in aggregate demand will cause interest rates to rise and this will reduce or "crowd out" interest-sensitive spending by the private sector. This type of spending is likely to be for capital purposes (e.g., business spending for plant and equipment and household spending for housing and durable goods including automobiles). As a result, the private capital stock inherited by future generations is likely to be smaller and their real income or output will likely be lower. It is the reduction in future output that constitutes the burden of the national debt and it is a burden borne largely by future generations. It is a burden that cannot be decreased by borrowing abroad even though foreign borrowing could leave unchanged the size of the private capital stock.
Crucial to the consensus view (and other views) is the assumption that the economy is fully employed. And the burden discussed must be regarded as a gross burden in the sense that certain intangible gains must be set against it such as freedom from tyranny and domination by a foreign power that might have occurred had the United States lost such a contest as World War II.
This report will be updated periodically.