Analysis Of The Federal Deficit And Deficit Spending

1181 Words5 Pages
Tyler Derby
Ms. Dancy
AP Macroeconomics
9 January 2015
Analysis of the Federal Deficit and Deficit Spending in General
For as long as Americans can remember there has always been a federal deficit. In fact, the only time in American history when there was no federal debt was under president Andrew Jackson, and it only lasted a single year(Wall Street Journal). The federal government never managed to pay off the debt again, although some administrations, like Coolidge’s and Clinton’s, have managed to run brief surpluses(Wall Street Journal). Yet today there seems to be no limit on the debt and deficit spending, and a key question has been pressed into the forefront of politics and fiscal policy, “is
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As long as the deficit is in proportion to GDP or Gross Domestic Product, the sum of a country’s goods and services, there is no significant fiscal risk to the economy. However there is a counter-argument that government deficits do matter. The argument is that if interest rates were to go up even a quarter point then that would lead to the need to take out even more debt to pay off previous interest payments. This would lead to the need to decide whether to decrease current spending on other programs such as healthcare or infrastructure to compensate for the new interest payments, or to maintain current spending and simply borrow more debt without attempting to curtail spending.Following the first would hurt economic growth and increase inequality, but following the latter would lead to the debt climbing higher at an increasingly fast rate that would risk causing massive inflation. Both sides make valid points. This paper will attempt to answer the question: Is the federal deficit and government deficits in general a good or a bad thing? While it may be easy to lose sight of how the government chooses to handle its money, it is also important for citizens to be conscious of how their money is being spent, and whether or not the current course that the government is plotted on is either sustainable or the best allocation of resources.
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