1. The federal debt increases every time there is a budget deficit at the end of the fiscal year.
2. A budget deficit occurs when the government spends more than it receives in revenue, as it has for the past five fiscal years.
3. The government makes up the difference by printing and selling Treasury bills and bonds, which are increasingly being bought by overseas investors looking to profit from the interest.
4. More than three-quarters of the federal budget deficit from March 2001 through September 2006 was underwritten by overseas investors.
5. Such financing is not necessarily a bad thing for the average American because it has helped keep interest rates relatively low.
6. Meanwhile, as a result of existing debt, the United States has less money to spend on infrastructure, technology and education -- improvements needed for the country to remain competitive in the global market.
7. Observers are also concerned that interest rates could rise if the federal government doesn't show more fiscal responsibility. For example, a country that typically lends money to the United States could begin charging higher interests rates on the loan out of concern for what it sees as an uncertain U.S. financial future.
8. In the worst-case scenario, other countries -- instead of just charging higher interest rates -- could decide to take their money elsewhere. For example, a series of international crises or a collapse in U.S. home values, could cause countries to move their investment out of the United States.
[Excerpt of an article by Kyle Almond, CNN]
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