1. Federal Deficit Federal Debt Leads to a larger $15.4 Trillion

2. NATIONAL DEBT AS % OF GDP Debt: 15.4 Trillion GDP 15.2 Trillion 101 % GDP.

3. Interest Rates Interest rates are the price of borrowing money – There are short term & long term interest rates – The Federal Reserve only controls short term interest rates Low interest rates are critical for a healthy economy – As interest rates ↑ => cost of borrowing money ↑ => GDP falls Government Bonds represent long term interest rates – the interest rate Government borrows money at!

4. Economic Theory of: “Crowding Out” Gov’t Deficit Spending Leads to Rising Federal Debt Gov’t must sell more bonds Forces long term Interest Rates Higher (crowds out private investor—they borrow less money for investments because interest rates are higher)

5. Has the Rising Debt hurt the U.S. ? Has Crowding Out Occurred? 10-Year Gov’t Bond Interest Rate No! U.S. interest rates are historically low! Short Run analysis:

6. Reading: Greece & Austerity?

7. College Grads & Occupy Wall Street http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=141331034&m=141344006

8. Crowding Out Handout