Question

The U.S. has a GDP of about $20trillion, but also owes $22 trillion in national debt. Foreign governments, foreign investors and American investors are still willing to lend money to the U.S. government.

a) What’s the reason that the U.S. Federal government still be able to borrow money from foreigners?

b) How does the U.S. government plan to pay back the national debt?

Answer 1

a) If the government is spending more than its revenue or income then naturally the government will be in deficit. The government will have to borrow from domestic or foreign investors. It issues treasury bonds which is a debt instrument and it is preferred by foreign government who has a surplus funds for the investment. Those foreign governments or investors are not concerned about the returns from those investments but they look for security and creditworthiness.
The US is running debt and that has been doubled in the last decade because of subprime crisis. The government had to borrow too much to stimulate the economy.
However, the US economy is still the biggest in this world and its political and financial institutions considered to be stable and mature. That is why the treasury bonds are assumed to be having the least risk as compared to other government's bonds and so people are still willing to buy that or to finance the US debt.

b) A higher level of debt is a serious issue if it is a persistent case. It increases borrowing cost, lowers credit rating and weaken the currency. The government can reduce the debt through raising its income or cutting back the expenditure. So the government can raise taxes to increase the revenue but that could harm the economy.
Another approach is to reduce the expenditure such as on welfare payments and infrastructure projects.

Similarly, the government can adopt policies which could increase output and export of the country that could result in inflow of the funds and that could reduce the debt.
The government can also print money to pay back the debt but it could stoke the inflation and weaken the currency in the international market.