The United States once had the largest economy in the entire world, and when there are problems with the American economy, waves of shock can be felt all over the world. The global economy is interconnected on many levels due to the scale of international trade. If the United States does not find a way to manage its debt, or does not find a way to reduce the debt, it would increase the cost of financing. for businesses due to rising interest rates. This could lead to high inflation. The stock market would also suffer greatly as investors might think that investing in the US market is too risky. This would cause stock markets to fall as investors would take their money to other countries or invest in gold; which many people have started doing. All of this would be economically disastrous and likely trigger another serious recession (Sachs, 1989). The U.S. economy is affected by its national debt, which is the unresolved balance of the government's domestic and foreign debts, or what the government owes in the form of Treasury bills, notes, and bonds issued, including debts towards banks and foreign governments. When the government has a high debt, it cuts its spending and its budget. The less the government spends, the more unemployment increases. When unemployment levels rise, the government must spend more on social protection, which is money spent without any productive aspect. This is a vicious cycle that is often repeated in many countries around the world because their currencies are linked to the US dollar. A country accumulates debt when government spending exceeds its revenues during a financial year. This is called a deficit and it is assessed against the country's gross domestic product (GDP)....... middle of paper ...... stronger position than it is was during the recession. Another important factor is that businesses are less dependent on the real estate sector, which triggered the recession in the first place. Most companies resumed austerity measures when things were bad and have ample cash that could be used to increase employment, at least for the initial impact, when measures could be taken by companies and the government to avoid a new recession. This explains why American debt affects the rest of the world (Whittred & Zimmer, 2009). American debt impacts the rest of the world because it is the country with the largest economy in the world. It is the largest country in terms of imports and exports, money lending and aid to the rest of the world. For this reason, most countries around the world like to invest in the US economy and vice versa..