Transcript Deficits, Surpluses, and the National Debt From Deficits to Debt

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Because of deficit spending, the national debt
has increased dramatically
Sometimes, the government is forced to
spend more than it collects because
unexpected developments cause a drop in
revenues or a rise in costs
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Depends on the way expenditures are
reported and the state of the economy
 Why do you think the wars in Iraq and Afghanistan
have been financed through “supplemental
requests?”
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Changes in the economy affect budget
projections.
Economic growth could shrink the deficit
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When the federal government runs a deficit,
it must finance the revenue shortage by
borrowing
 Does this by selling U.S. Treasury notes and
securities to the public
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The national debt grows whenever the
government runs a deficit by spending more
than it collects in revenues
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Money the government owes itself
 Ex: Trust funds
 -Huh?
▪ We TRUST the government with our federal tax dollars
to put money away for us
▪ Social Security
▪ Medicare … etc
▪ Does this money just sit in someone’s desk… NEIN!!!!!
 They buy government securities until payment is due…
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The country can never go bankrupt
We owe most of the national debt to ourselves
Private debt is owed to others
Borrowing:
 Private citizens: make plans to repay debt by certain date
 Government: issues new bonds to pay off old bonds
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Purchasing power:
 Private individuals: give up purchasing power because
they have less money to buy goods and services
 Government: does not give up power because the taxes
collected from some groups are transferred to others
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The national debt affects the distribution of
income and transfers purchasing power from
the private to public sector
The more the government borrows today,
the more future generations will have to pay
What other effects does the national debt
have on the nation?
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When the public debt increases, taxes
increase and people have less money for
themselves
One generation to the next
 Accumulation of debt by one generation can thus
reduce the economic well-being of the next
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Government can reduce economics
incentives if it appears to spend money in a
careless manner
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When the federal government uses deficit
spending, it must borrow money in financial
markets
 Borrowing can drive interest rates up, forcing
borrowers to pay more for the temporary use of
funds
 If private borrowers cannot afford the higher
interest rates, they are squeezed out of the
market
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The national debt and the tax structure can
impact the distribution of income
 The people paying less in taxes would benefit
from the tax policy
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How does the transfer of purchasing power
between generations affect you?
 Congress has tried a number of measures to reduce
deficits and national debt
 Legislative failures (come up with new mandates /
laws)
▪ Moving back SS age to collect
 Raising revenues (Higher Taxes / lower taxes)
▪ How would this work?
 What do you think has stopped the government from
doing making this reduction possible since 2001?
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One way to control the deficit is by reducing
federal spending
What events in 2001 have added to the
national debt?
Do you think that the federal government will
reduce the national debt in the next 15 years?