The idea of continually increasing external debt without limitations is not a sustainable or advisable economic strategy. While some level of debt can be manageable and even necessary for economic growth and stability, excessively high levels of debt can have significant negative consequences. Here are some reasons why it's not practical or wise to keep increasing the U.S. external debt without considering the implications:
1. **Interest Payments:**
- As the level of debt increases, so do the interest payments on that debt. A significant portion of the government budget may be allocated to servicing the interest on the debt, reducing the funds available for other essential programs and services.
2. **Creditworthiness:**
- Excessive debt levels can negatively impact a country's creditworthiness. If investors perceive a high risk associated with a country's debt, they may demand higher interest rates to compensate for the perceived risk. This can make it more expensive for the government to borrow in the future.
3. **Inflation Risk:**
- A rapid and unchecked increase in the money supply to finance debt can lead to inflation. Inflation erodes the purchasing power of money, affecting consumers, savers, and investors.
4. **Crowding Out:**
- When a large portion of government spending is directed toward debt service, it can "crowd out" other essential public expenditures. This includes spending on infrastructure, education, healthcare, and social programs.
5. **Economic Instability:**
- High levels of debt can make an economy more vulnerable to economic shocks. In times of economic downturns, governments may be limited in their ability to implement fiscal stimulus measures due to already high debt levels.
6. **Debt Trap:**
- A situation known as a "debt trap" can occur when a country is unable to generate sufficient economic growth to cover the cost of servicing its debt. This can lead to a cycle of increasing debt burdens and economic challenges.
7. **Diminished Fiscal Policy Tools:**
- High levels of debt can limit the effectiveness of fiscal policy tools during economic downturns. If the government has already accumulated significant debt, its ability to implement counter-cyclical measures may be constrained.
8. **Negative Impact on Investment:**
- Excessive debt levels can lead to uncertainty and reduced confidence among investors. This can negatively impact both domestic and foreign investment in the country.
9. **Interconnected Global Economy:**
- In an interconnected global economy, high levels of debt in one country can have spillover effects on other economies. Economic challenges in a major economy can contribute to global economic instability.
While a moderate level of debt can be a tool for financing important investments and smoothing out economic fluctuations, it is crucial to strike a balance and manage debt responsibly to avoid the negative consequences associated with unsustainable debt levels. Governments typically aim to maintain fiscal discipline and implement policies that foster economic growth while ensuring debt remains at manageable levels.