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The government finances the deficit by borrowing real assets from capital markets. This borrowing is competition for private companies also seeking capital. T
by mobilefriendly 9y ago
The 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)