1. Deficits, Surpluses, and the National Debt

2. From Deficits to Debt
Because of deficit spending, the national debt has increased dramatically
Sometimes, the government is forced to spend more than it collects because unexpected developments cause a drop in revenues or a rise in costs

3. Predicting the Deficit
Depends on the way expenditures are reported and the state of the economy
Why do you think the wars in Iraq and Afghanistan have been financed through “supplemental requests?”
Changes in the economy affect budget projections.
Economic growth could shrink the deficit

4. Deficits Add to the Debt
When the federal government runs a deficit, it must finance the revenue shortage by borrowing
Does this by selling U.S. Treasury notes and securities to the public
The national debt grows whenever the government runs a deficit by spending more than it collects in revenues

5. A Growing Public Debt Money the government owes itself Ex: Trust funds
-Huh?
We TRUST the government with our federal tax dollars to put money away for us
Social Security
Medicare … etc
Does this money just sit in someone’s desk… NEIN!!!!!
They buy government securities until payment is due…

6. Public vs. Private Debt The country can never go bankrupt
We owe most of the national debt to ourselves
Private debt is owed to others
Borrowing:
Private citizens: make plans to repay debt by certain date
Government: issues new bonds to pay off old bonds
Purchasing power:
Private individuals: give up purchasing power because they have less money to buy goods and services
Government: does not give up power because the taxes collected from some groups are transferred to others

7. Impact of the National Debt
The national debt affects the distribution of income and transfers purchasing power from the private to public sector
The more the government borrows today, the more future generations will have to pay
What other effects does the national debt have on the nation?

8. Transferring Purchase Power
When the public debt increases, taxes increase and people have less money for themselves
One generation to the next
Accumulation of debt by one generation can thus reduce the economic well-being of the next

9. Reducing Economic Incentives
Government can reduce economics incentives if it appears to spend money in a careless manner

10. Crowding Out
When the federal government uses deficit spending, it must borrow money in financial markets
Borrowing can drive interest rates up, forcing borrowers to pay more for the temporary use of funds
If private borrowers cannot afford the higher interest rates, they are squeezed out of the market

11. Redistributing Income
The national debt and the tax structure can impact the distribution of income
The people paying less in taxes would benefit from the tax policy
How does the transfer of purchasing power between generations affect you?

12. Reducing Deficits and the Debt
Congress has tried a number of measures to reduce deficits and national debt
Legislative failures (come up with new mandates / laws)
Moving back SS age to collect
Raising revenues (Higher Taxes / lower taxes)
How would this work?
What do you think has stopped the government from doing making this reduction possible since 2001?

13. Reducing Spending
One way to control the deficit is by reducing federal spending
What events in 2001 have added to the national debt?
Do you think that the federal government will reduce the national debt in the next 15 years?