The Impact of the Deficit Surplus and Debt of the United States

The growing national deficit is a looming problem in the United States now more than ever. The national debt is constantly increasing and government spending is out of control. If these issues are not solved then they could spell disaster for the nation’s economy when the infamous debt ceiling is finally reached. Currently the national policy on the debt is to continue raising the debt limit until a solution is found that is agreeable between both parties in Congress. The two main issues of over spending and the constant raising of the debts ceiling by Congress can both be resolved by government spending reform, balancing the federal budget and initiating pro-growth policies in order to increase the government’s tax revenue.

An economic downturn automatically paves way to a decline in taxation and an increase in government spending. This causes deficit. Nevertheless, if the government tries to reverse the situation by increasing tax rates, it would further result in a deflated economy leading to more unemployment and lower economic growth. A negative multiplier effect may give rise to an increase in deficit. Thus, deficit increases AD in a recession (Carbaugh, 2011).

The recent clash between the president and congress about raising the debt ceiling made the front page on every newspaper throughout the country and generated controversy of unimaginable proportion among the citizens of the United States of America (College for Financial Planning). No macroeconomics issue is more controversial today than the impact of large public debt on the economy and on future generations, but, however, there appears to be a huge disconnect between professional, political leaders, and the ordinary public about the national debt and its impact on the current and future

The federal budget deficit is a much discussed and little understood subject in American politics. The current recession has dramatically decreased tax revenues, driving the United States federal government to increase spending in an attempt to stabilize the economy. As a result the current federal deficit is at over $1.3 trillion dollars. This is approximately $47,754 per U.S. citizen or $137,552 per U. S. taxpayer (U.S. Debt Clock: Real Time, 2012).

We hear about the debt almost every day: news talks about it, politicians argue about it, even President Obama gives speeches on it. So what is the significance behind it? In this article I am going to explain briefly what the national debt is, how big it is, and what it has to do with us.

While the national debt continues to rise at a staggering amount, the federal deficit slowly rising. The deficit, to my understanding, is the difference between the amount of money the government is bringing in versus what it spends annually. The incline in the deficit can be credited to higher government spending and the end of the recession. Because the deficits are growing, they are causing the national debt to increase. Meaning that even though they are becoming smaller, they are

The U.S debt limit is a legislative mechanism to limit the amount of debt the United States can acquire. It does this by limiting the amount of money the Department of the Treasury can borrow. The debt ceiling stops the U.S. from paying for expenditures after the limit has been reached. The debt ceiling stems from the constitution in article one which governs all of congress allowing congress to borrow money on the credit of the entire United States. According to the constitution all spending bills must originate in the House of Representatives. The debt ceiling as we know today was established by the First Liberty Bond Act. This act allowed us acquire debt in the form of bonds; the act established a $5 billion aggregate limit on the amount

The National Debt is the sum total of all deficit. This is the amount of money that is over the budget and money that is borrowed from other countries to help in our financial needs. The deficit effects our country by the government doing what they believe is best for the country and spending more than what the country makes. The United States ends up having more than what we needed to survive and having to throw away more or most of those goods rather than repairing it or just getting enough to that would be needed to feed our country. This creates debt and increases it the more that the people or the economy is in risk of a recession or a depression.

current account deficit is financed by foreign capital inflows. These increasing direct foreign investments in the United States cannot continue without limit. This process cannot continue indefinitely since in continued, foreigner investors will eventually hold a larger share of American assets in their portfolios than they desire because there is a limit to the appetite for US. assets. The portfolio will be so large that foreigners will worry about the ability of the United States to service and pay back this debt. Already, foreign investors own 19.4% of U.S. debt.

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.

In examining the United States economic health, it is important to consider the current account deficits. The question as to whether or not the United States can run the current deficit accounts indefinitely. Looking at the EU and its balance of payments, the question arises again as to whether or not they can maintain the deficits they are experiencing, indefinitely. Globally speaking, the United States does hold a unique position, but does that position allow the country the ability to consistently run the deficits it currently maintains.

A budget deficit is when spending exceeds income, which usually applies to governments. When talking about accumulated federal government deficits, the deficits are referred to as the national debt. Trade deficit is an economic measure of international trade in which a country's imports exceeds its export. Budget deficit and foreign trade deficit are complementary. The United States currently has a great trade deficit which also means that the U.S. has a budget deficit. For the U.S. to be able to borrow money from other countries we must buy more from them than they are buying from us. The value of the U.S. dollar depends on foreign currencies. Foreigners find U.S. goods to be expensive due to the value of the U.S. dollar. Because of this exports

3.  Is the U.S. current account deficit in 2005 sustainable?  Is its continual widening a problem?  Is it an economic problem?  A political one?  Is the United States headed toward crisis?  Why or why not?

The current account is an important component of the balance of trade system of our country. It is a measurement of a country’s trade where the value of the goods and services it exports. A current account deficit represents negative sales abroad. A country undergoing current account deficit results in foreign liabilities and debt with the rest of the world. This further leads to payback of foreign current account reserves. Current Account includes imports and exports of goods and services and unilateral transfers of goods and services. Current account deficit in simple words is the economic situation when the total imports are more than the exports. This means that the country is importing more than exporting which requires the country to pay for the goods and services it imports. This leads to an unfavorable economic situation. The present record is a

Research on the impact of budget deficits policy to inflation has been done a lot, including research that conducted by Darrat (1985) using data from the United States in the 1960s , and the results showed that the growth of money and the budget deficit policy in the U.S. affects inflation . In these studies, Darrat using OLS (Ordinary Least Square) analysis techniques. Another study conducted by Metin (1998 ) to explore the budget deficit policy in Turkey by using data in 1950-1987 and using the OLS analysis techniques , the results showed that the budget deficit significantly influence inflation in Turkey. Further research conducted by Darrat ( 2000) is the budget deficit policy in Egypt using data in 1957-1993 and uses technical analysis of the ECM