National Debt Explained by Professor Zurc to Students

Prof. Zurc

A simulated dialogue featuring Professor Zurc, a fiscal policy professor, and two female students, Isabella (a second-year finance major) and Natalie (a first-year economics major), discussing U.S. national debt. The conversation simplifies the core principles for students without losing accuracy.

Scene: Professor  Zurc’s Office Hours – Understanding U.S. National Debt

Characters:

Professor  Zurc – Finance professor, specializes in fiscal policy.

Isabella – Second-year finance student.

Natalie – First-year economics student.

Isabella:

Professor  Zurc, I’ve been reading about the U.S. national debt hitting nearly $37 trillion. It feels overwhelming. Why does the government borrow so much? Can’t we just spend what we collect in taxes?

Prof.  Zurc:

It is a question with multiple ramifications, so let me address its basic elements, Isabella. Here’s the simplest way to consider it:

Taxes fund government programs, including defense, healthcare, and Social Security.

However, often spending exceeds tax revenue, so the government borrows to cover the shortfall.

This borrowing creates the national debt, which consists of money owed to investors, foreign governments, and even other parts of the U.S. government itself.

Natalie:

Wait, the government owes money to itself?

Prof.  Zurc:

Yes! That’s called intragovernmental debt. For example, the Social Security Trust Fund holds Treasury securities. So, part of the national debt is one branch of government owing another.

The other part, referred to as public debt, is what the government owes to outside investors, including both domestic and foreign entities. This includes items such as Treasury bonds, notes, and bills.

Isabella:

But why does the debt keep rising? Has it always been this way?

Prof.  Zurc:

Historically, debt has increased more rapidly during major events, such as wars, recessions, or emergencies like pandemics. Think of:

The Revolutionary War

The Civil War

World War I and World War II

The 2008 financial crisis

COVID-19

In calmer times, we could pay down the debt. In fact, President Andrew Jackson reduced the debt to zero once—in 1835—but it triggered an economic downturn soon after.

Natalie:

Why not just stop borrowing? Can’t we cut spending?

Prof.  Zurc:

That’s the political debate! Cutting spending is easier said than done. Every program—whether it’s healthcare, defense, or education—has supporters.

Some argue for spending cuts.

Others argue for raising taxes.

But neither side entirely agrees on where or how much to cut, which is why the debt keeps rising.

Isabella:

What about the debt ceiling? I’ve heard that mentioned a lot.

Prof.  Zurc:

The debt ceiling is the statutory (legal) limit on the amount of debt the government can incur. Congress sets it.

It was created in 1917 during World War I.

It’s been raised around 80 times since 1960.

The U.S. is one of the only countries with this kind of limit. The other is Denmark, but theirs is so high they rarely touch it.

Natalie:

But isn’t hitting the debt ceiling dangerous?

Prof.  Zurc:

Absolutely. If we defaulted—meaning we couldn’t pay our debts—it would shake global financial markets. That’s why, even though Congress argues, they ultimately raise the ceiling in the end. Key 

Takeaway:

Prof.  Zurc:

While the focus is on the debt amount, economists often watch two key ratios:

Debt-to-GDP ratio – How much debt we owe compared to the size of our economy.

Interest payments relative to GDP – How much we spend on debt interest each year.

If those remain manageable, the debt isn’t immediately harmful. However, if they rise too quickly, investor confidence declines, and borrowing costs increase.

Isabella:

So, even though the debt seems huge, it’s really about whether the economy can support it?

Prof.  Zurc:

Exactly. Think of it like a household mortgage. A large loan might be suitable if your income is steady, but it becomes riskier if your income fluctuates. Another consideration is the political viewpoint, where analysts from various affiliations interpret or perceive the extent of what constitutes a supportive economic landscape. 

 Questions for Review:

What’s the difference between public debt and intragovernmental debt?

Why does the debt ceiling exist, and what are the risks if it isn’t raised?

What are the debt-to-GDP and interest-to-GDP ratios, and why do they matter?

Can you name two historical events that caused the U.S. national debt to rise significantly?

Referenced Resources

The total outstanding public debt in the US

US Department of the Treasury (Data Visualization)

How Alexander Hamilton managed the national debt

Smithsonian Magazine (Article)

The time the US eliminated the national debt, NPR (Podcast)

Understanding the debt ceiling in the US, Vox (Video)

Treasury bonds vs. Treasury notes vs. Treasury bills

Investopedia

Breaking down the national debt, US Department of the Treasury (Data Visualization)

America's unsustainable fiscal future, US Government Accountability Office (Data Visualization)