The United States government borrows the money which it needs to be able to operate its federal government. Borrowing is done by means of the issuing and servicing of the U.S. treasury securities and the marketable savings. The debt capacity of the U.S. government is the ability of the government to borrow. It is the funding amount that the government can borrow up to a certain point when its government value does not increase any more. The debt capacity in this case is the general assessment of all amount of debt, which the government of the U.S. can be able to repay within a certain time, without the forfeiting of the government’s financial viability. It also includes the overall determination of the long term debt amount, which can remain outstanding, and also the total debt amount that the government can be able to incur within its articles of association constraints (Runy, 2006).
The government can be able to come up with a debt capacity by coming up with some accounting books, where there is the determination of all sources of the government income and all the government expenses, which can be further tallied so as to be able to know and determine all the government accounted income. Through this weighing of income and the expenditure, the government is then capable to determine if there is enough income, which can be spent on the servicing of the public debts or used in the determination of the debt amount which can be carried out within a specified time (Murse, 2011).
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All the projects, which come from the government’s budget, can affect all the expenditures which are in the government budget. The debt obligation level affects all the activities which the government undertakes. This repayment of the government is usually extremely high which can end up causing a reduction in the investment opportunities.
If the U.S. government takes a decision to make a refund, the choice would then facilitate the government’s ability to add a brand new debt to an existing debt portfolio. This would further mean the possibility for the government to raise the debt, so as to be able to make payments for the existing principle debt and the interest accrued on the existing debt. The US government needs to be able to make consequential and crucial decisions, which relate to its debt obligations, so as to be able to determine if there is the possibility of reorganizing the debt or refunding the debt (Cavanaugh, 1996).
If the US government can gain a new debt at a better interest rate or even change the debt term. This could give the local government of the US an allowance to revise its debt repayment schedules, which could help the government in planning its budget needs, which are short term. The government could decide to refund the debt, in order to replace a debt at a relatively low interest rate, which might have economic advantages; if the debt term were changed, it would mean the possibility of an increase in the debt cost over the debt term.
The U.S. government also has the potential to reorganize its debt. In so doing, the public debt would shift from one financial source to another financial source. This would not have any effect to the lender, where, for example, the debt could be easily repaid by another debt obtained from another potential lender. The main reason as to why this may occur is favorable terms, which can be beneficial towards the U.S. economy, for example, the availability of low interest rates or repayment schedules, which may have different provisions, different terms, and the increased flexibility in the loan management (Cavanaugh, 1996).
Other funding alternatives which can be used in supporting debt obligation, include the alternatives that the governments use, for example, the offshore funding channels, which include the use of the euro commercial paper, the use of the bond programs or even the use of the federal funding program by the government through availing itself (Thomas, 2010). The government can also redeem all the government securities. The government can collateralize the debt obligations by using Collateralized Debt Obligations (CDOs), which are promises of cash flow payments to all the investors; this is in most cases based on the amount of cash flows that the CDOs usually collects through the sale of the public bonds and other government assets that it owns.
In the U.S., the Social Security Fund is a requirement by the law in the country, which usually invests in the form of securities, which are issued under the guarantee of the federal government and are treated as an intra-governmental debt. The redeeming of these securities can be made by the government so as to be able to make payments, which are beneficial, since the self-employed contributors are not sufficient to fund payments which are beneficial (White, 1999). Public debt has advantages since the national funds are secured at lower interest rates than the securities from the private industry; thus, the government financial operations are funded fully and permanently.