Download Budget Deficits and the National Debt

Budget Deficits and the
National Debt
The Budget
• Balanced Budget:
– When revenue equals spending
• Budget Surplus:
– When the government takes in more than it spends
• Budget Deficit:
– When the government spends more than it takes in
Why can’t the government just print
more money?
• Creating more money creates more . . .
– Demand
• As Demand starts to reach its maximum,
creating more money just creates . . .
– Inflation
• If you continue this will cause . . .
– Hyperinflation
An Example You’ve Heard Before
• Pretend the total amount of money in the economy is
$100 and we are already at 100% demand.
• Pretend the price of a loaf of bread is $1.
– Remember: How do prices get set?
•
•
•
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Now we print another $100 and give it to the people.
Demand hasn’t changed.
Supply hasn’t changed.
To accommodate the new money all prices will double.
In other words, the price of a loaf of bread will now be
$2 (INFLATION!)
So if we can’t print it, how does the
government get more money?
• Borrowing Money
– Through Treasury Bonds, Treasury Notes and
Treasury Bills (Securities)
• Of course borrowing too much puts us in debt
National Deficit vs National Debt
• National Deficit:
– The difference between revenue and expenditures in
one year.
• Nation Debt:
– The total of all unpaid debts for all years
Problems with the National Debt
•
The greater the debt, the larger the Mandatory
portion of the budget becomes
-
And therefore the smaller the discretionary portion
becomes
Thus the more money tied up in debt, the less
money there is to use in the economy
How much do they spend every year on interest
payments on debt?
-
At the beginning of the 21st Century, the Federal
Government paid out $250 billion dollars a year
servicing debt
Keynesian View of Debt
• Using fiscal policy to affect the economy is more
important than worrying about debt.
– So, if we have to go into debt, so be it.
• However, going into debt should be a shortterm situation.
Do We Always Run at a Deficit?
• When was the last year we had a surplus?
– 2000, we had a surplus of $236 Billion.
• Note: Just because we had a budget surplus in
2000, does NOT mean we were out of debt.
– It just means we operated at a surplus for that year.
So What is the National Debt Today?
•
As of 28 Sep 2007 the National Debt is:
$8,996,569,252,678.20
•
•
•
The estimated population of the
United States is 303,108,129
So each citizen's share of this debt is
$29,681.06.
The National Debt has continued to
increase an average of
$1.35 billion per day since
September 29, 2006!
Facts from:
http://www.brillig.com/debt_clock/
• As of 05 Mar 2009 at 05:31:48 PM GMT,
the National Debt is:
• $10,950,566,432,412.55
• The estimated population of the
United States is 305,760,363.
• So each citizen's share of this debt is
•
$35,814.21.
•
The National Debt has continued to
increase an average of
$3.71 billion per day since
September 28, 2007
Maxing Out the National Debt Clock
• October 09, 2008 10:14 AM ET