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The real potential problems with a deficit are inflation (which isn't high) and bad allocation of real resources. Financing it isn't a problem. The US governme
by mempko 9y ago
The real potential problems with a deficit are inflation (which isn't high) and bad allocation of real resources. Financing it isn't a problem.
The US government spends X amount. That means X amount enters the economy. Then they ask for Y amount back. Y amount are taxes. X-Y is the deficit. The deficit ends up in our bank accounts as savings. Reducing the deficit means fewer dollars enter the economy which means less money in people's savings accounts. Smaller deficit means a slowdown in the economy.
Where does the federal government get X amount? Same place a score keeper gets the points they give out in a football match. It comes out of nothing. Its literally a computer key stroke. The treasury and the IRS don't even talk to each other. There is no problem financing the deficit.
- onlyrealcuzzo 9y agoJust a writing tip: You're getting down voted, and if you reordered your statements you probably wouldn't. This is a thread that attracts people complaining about the budget. Your first statements make it look like you think everything is fine, which is in disagreement, which turns people off and makes them down vote you. But your point is that there is a problem, and it's actually allocation, which is a good point. If you put that first and backed it up, and then debunked the deficit, more people would likely read it, and they might agree with you too. Anyway, hope that helps.
- mempko 9y agogood tip, edited the original
- mobilefriendly 9y agoThe government finances the deficit by borrowing real assets from capital markets. This borrowing is competition for private companies also seeking capital. The government generally invests in things that don't improve growth and productivity, such as military and repaying old debts, so this borrowing is a misallocation of resources. The government is taking money out of the private sector when it runs a deficit.
- mempko 9y agoAfter the abolition of the gold standard, the bond markets are no longer necessary for financing. They are a historical artifact and today's real purpose is to provide businesses with a safe investment (federal gov can always pay back a bond+interest)