US Foreign Debt Crisis

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Although the United States' level of foreign debt has fluctuated over the decades since the nation's birth, during the 1980s Reganomics started a trend of higher and higher obligations to foreign creditors that continues into the 21st century.

The United States have struggled with debt since before they were united states. The colonies ran up nearly $250 million in debt to finance the war for independence. In the 1790s the fledgeling government devised a way of managing the national debt, and began the business of growing their country. Debt is commonly measured by comparing the ammount of debt to the ammount of the Gross National Product (GNP), and when the debt management plan was adopted in 1791 the national debt was about 40% of the GNP1.

By the time World War I began the US had become a creditor to other nations, and the foreign debt was balanced out by the ammount of foreign credit owed to the US government. By this formula the US enjoyed a surplus for many years until the 1970s when the national debt flirted with breaking even.

When Ronald Regan became President in 1980, the nation's debt to GNP ratio was 33%. The policies of the Regan Administration paired tax cuts with increased defense spending and refusal to cut spending elsewhere, causing foreign debt to soar. When President Regan left office in 1988 the debt/GNP ratio was 53%, the highest in US history apart from post WWII.

1This means that the total of what the government owed to creditors was equal to 40 percent of the government's income or product.

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