Wednesday, March 9, 2011
Federal debt and deficits
U.S. Federal Reserve Chairman Ben Bernanke believes that Congress should start focusing on ways to lower the debt to GDP ratio in the U.S. in an effort to tackle deficit problems and increase confidence in the government and its fiscal policies (see here). According to the article, the White House's latest proposed budget will stabilize the debt to GDP ratio over the next several years. However, according to Hennessey's Chart of percent of the deficit to GDP (see here), Obama's proposed budget path actually suggests long term budget problems. This article also touches on several points about federal debt and deficits that we have discussed in class. Both articles explain how the U.S. needs to get on a sustainable path or else we'll have to face harsh interest rates from foreign creditors. Some economists argue that federal budget deficits are meaningless because the government issues US dollars, and some believe that deficits are even beneficial. Do you agree with this? If not, why do you think deficits may be detrimental to our country? What are some ways that the US could decrease the deficit and make it more sustainable?
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I really liked the graph on the second link that related our taxes and spending.I'm not sure about where I stand on if keeping a running yet controllable deficit is fine in the long term, but the US deficit is absolutely out of control. Between structural improvements to stabilize the economy, and paying back the deficit, taxes will have to increase. Moving the IS curve out through tax cuts only has a favorable affect to a certain point. We are paying the lowest taxes and spending the most at any point in history. That is frightening. At some point I believe a small broad base tax increase could actually benefit the economy. It could create jobs, maybe help pay down the deficit.
ReplyDeleteOperating a budget deficit isn't the greatest move when, as we learned in class Tuesday, 400 Americans control the wealth of a country of 15+million, and we refuse to issue higher income taxes to higher brackets. The reality is that money isn't being cycled through the economy and is really hurting because us as a whole because of a lack of commerce.
ReplyDeleteI agree with Terrence. I think we have such a globalized economy that the budget deficit is a serious issue because part of our debt is to foreigners (not sure exactly how much). I think we should look at military and defense as we seek to decrease the deficit.
ReplyDeleteI'm at a bit of a loss. I don't understand the difficulty in cutting unnecessary spending, tightning defense and military budgets, and raising taxes in order to help balance the national budget sheet.
ReplyDeleteBudget deficits are not that bad, and it is not like our economy / market cannot function while our budget is in such a hole. It is the fact that our deficit is increasing at rapid rates every year, as well as not having a credible and valuable solution to fix it, is the biggest concern. We do not seem to understand that unlimited spending will eventually catch up to the spender, like maxing out credit cards for a year. We are entering that time period now and it is not looking like a particularly bright future.
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