Gould, Hilarey, and Kimberly Amadeo. “How Did the U.S. National Debt Get So Big?” The Balance, The Balance, 4 Oct. 2022, https://www.thebalancemoney.com/the-u-s-debt-and-how-it-got-so-big-3305778.
Direct Quote: “In the short run, the economy and voters benefit from deficit spending because it drives economic growth and stability. The federal government pays for defense equipment, health care, building construction, and contracts with private businesses. New employees are then hired and they spend their salaries on necessities and wants, like gas, groceries, new clothes, and more. This consumer spending boosts the economy. As part of the components of GDP, federal government spending contributes around 7%. Over the long term, debt holders could demand larger interest payments, because the debt-to-GDP ratio increases, and this high ratio of debt to gross domestic product (GDP) tells investors that the country might have problems repaying them. That’s a newer—and worrying—occurrence for the U.S. Back in 1988, the national debt was only half of what the U.S. produced that year. Lower demand for Treasurys also puts downward pressure on the dollar because its value is tied to the value of Treasury securities. As the dollar value declines, foreign holders get paid back in a currency that is worth less than when they invested, which further decreases demand. Many of these foreign holders would become more likely to invest in their own countries. At that point, the U.S. would have to pay higher interest payments”.
Summary/My Interpretation: One of the most controversial topics in the US is whether or not the nation should continue to increase its federal spending. Whenever the nation invests more into programs, it spurs economic growth in the short run as jobs are often created and there is an increase in the amount of money in circulation. However, while the economy is boosted in the short run, the deficit ultimately hinders growth overtime. Specifically, as the US continues to amass debt, investors start to lose confidence that the nation will pay them back. This causes them not only to demand their money back but also causes the US dollar to depreciate in value.
How I will use this in my project: This article does a good job at explaining the inherent trade off that exists when looking at federal spending. More specifically, it highlights how increasing the deficit spurs economic growth in the short run but will eventually hurt the nation’s GDP as it drives down investor confidence. I plan to use this article as a way to explore the debate that exists between those who support increasing the deficit and those that believe we should be working to solve the debt crisis. Additionally, I also plan to use this article as a way to show how increasing the debt has helped the US, such as how it played an essential role in implementing FDR’s New Deal.
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