1. Federal Deficit and Debt

2. Budget Deficits 1789-1930 Federal Budget deficit 33% of that time’
Primarily during war years
1931-today Federal Budget deficit 85% of that time
Surplus
Since 1960 there has been only 4 years not in deficit

3. Why is the federal budget in deficit?
US does not require a balanced budget unlike 49 states
Elected officials maximize political support
Voters like public spending but not tax hikes
“in the long run we are all dead”

4. The Federal Surplus of 1998-2001
Two tax hikes in early 1990’s (Bush Sr., Clinton)
Tech boosted economy
End of cold war
Globalization
Revenue grew 8.3% per year from
Spending held in Check
Federal surplus of $69 billion in 1998 to $236 billion in 2000 (largest ever)
Spring 2001 economy entered recession

5. Trillion Dollar Deficit
George W. Bush pushed across the board cut in income tax rates
9/11 happened hurting the travel industry
Economy grew till 2007
Global financial crisis of 2008
TARP $168 Billion
Great recession
Drop in revenue due to unemployment, income, hence less tax receipts
Discretionary tax cuts
Unemployment benefits, welfare payments

6. Trillion Dollar Deficit
Recovery Act of $787 billion
Deficit went from $161 billion in 2007 to $1.4 trillion in 2009,
$1.3 trillion 2010
$1.6 Trillion 2011
$1.1 Trillion 2012
Fiscal policy Shifts from reviving the economy to reducing huge deficits

7. Deficits and Interest Rates
Crowding out- occurs when large government deficits drive up interest rates and thereby reduce private investment
Crowding In- government deficit to stimulate private investment

8. Federal Debt Deficit refers to the budget Debt refers to national Debt
200 yrs for Debt to reach $1Trillion
5 presidents to reach $15 Trillion
GDP Acts as a Credit score fore the country (show its ability to carry debt)
% to GDP WWII caused it to go over 100% compared to GDP

9. Federal Debt
GDP Acts as a Credit score fore the country (show its ability to carry debt)
% to GDP WWII caused it to go over 100% compared to GDP by 1946
Today 75% same last time was in 1950

10. Economic Impact of Federal Debt
Federal government rarely pays off debt
When bonds mature they sell more bonds to pay for matured bonds (like paying a credit card bill with another credit card)
Interest is 6.5% of federal budget

11. Who bears the burden of Debt
We owe it to ourselves
Foreign ownership of debt
2011 foreigners owned about 46% of federal debt
20% in 1994
Pushed onto future generations

12. Other Issues of Federal Deficit and Debt
Are persistent deficits sustainable?
As long as lenders willing to finance it, confidence of getting repaid
Debt Ceiling- total amount of money the federal government can legally borrow
Has been raised more than 80 times
Debt Default if government has inability to pay back bonds, either through hitting debt ceiling and not raising it
or it is forced to pay a higher interest rate on bonds to not default

13. Other Issues of Federal Deficit and Debt
Problem is how to fix issue in long run
Republicans want to cut spending
Democrats want to raise taxes on wealthy (to increase revenue)
Both are needed to lower the national debt