What economis factors have contributed to the expansion of the U.S. debt and deficit?

Question

* Wars, the depression... i just need more?

* Wars, the depression... i just need more?

* Wars, the depression... i just need more?

Answer 1

A bad federal reserve.

The country looks bad if people aren't spending. So the Fed lowers rates so that people can borrow more and then spend more. Which makes our GDP look OK in the short term, but has lasting effects on the U.S. Debt.

Also, as a whole Americans are horrible at saving, at one point we had a negative savings rate. This habit puts American citizens in debt, which is also unhealthy and doesn't go towards productive uses of money like investment.

The U.S. trade deficit is growing in the negative direction because once again the Fed borrows a lot by issuing lots of U.S. bonds. China and others have been buying these up, and that means the interest of the bonds goes overseas on a continual basis. That's less money that we can spend, and more that China can spend.

China has opened up its borders for trade, and it can do so rather quickly because it is communist. They can get things done a lot quicker when you don't allow for opposition. So what this has allowed is a lot of companies are moving into China, and which distributes wealth in China and not here.

Our manufacturing sector has declined due to China.

Meanwhile...

We are fighting a war in the Middle East that has put us in a really bad position. We are bearing the brunt of it because it is mainly our war, and there is little way out. Wars cost a lot of money, especially this one because of the length of time and limited results. There is no end either, because of Iran in my opinion, which is much more of a threat and more hostile. I would not be surprised if we went there, which would cost more money. Which in turn is funded by the Chinese buying our bonds which we eventually pay them for with interest.

Hope this helps.

**************edit: I think the fed does affect the debt, unlike the the person below me. in less amount the U.S. government's debt but the country's debt as a whole, it does affect it. Another way of looking at it also is that in order to make the U.S. government debt seem smaller, the Federal Reserve will lower interest rates so that the value of that debt decrease in value, not in the numerical terms but in value terms (e.g. If you owe johnny one dollar, if you could somehow reduce the value of that dollar, your debt of one dollar may be worth .50 cents in future terms) In reality this doesn't work very well, because its only a short term monetary band aid. Not only that but it encourages debt because it makes it seem like we're doing something about it. Also devaluing the dollar is bad for the economy.

Proof of devaluation: the dollar used to be worth more than the euro.

*****edit in reference to fourth answer: I'm not necessarily blaming any presidential administration i.e. bush or clinton; its more Greenspan and Bernanke. The Iraq thing, I'm not blaming an administration, I'm just saying regardless of who you support, this is the situation that we are in.

Answer 2

Very Simple the US debt is the result of the federal governement spending more than what it brings in in tax reciepts.

Departments that have the most money spent on them..
1. Health and Human Services $700 Billion a year
2. Defense $600 Billion a year
3. Us Treasury (includes interest on debt) $500 billion a year
4. Dept of Agriculture $100 billion a year
Thats 1.9 trillion and tax reciepts are 2.4 trillion so that leaves 500 billion to run the rest of the government.

The deficit is waaaay more complicated---but China is a pretty good answer for the largest economic factor.

Answer 3

The Federal Reserve has nothing to do with the debt or the deficit. The Fed controls the money supply and interest rates.

Congress controls the amount of debt and the size of the deficit. These have both increased dramatically under the Bush administration. The deficit exists because expenditures exceed revenue, and the deficit has increased because:

1. Taxes have been reduced sharply
2. Expenditures on defense spending and homeland security have risen.

Answer 4

Though for some reason people like to blame the current administration, in fact the federal government has engaged in deficit spending for 54 of the past 66 years -- ie, 82% of the time, since 1940. This has occurred through all economic conditions good and bad.

As for the economic reasons -- simple, it is economically beneficial to run a deficit. Selling bonds to people who voluntarily offer their money because such an investment is aligned with their investment goals is more benign that coercing money by force from people who cannot afford to pay taxes and financially ruining them.

No politician will admit this because it is truly politically incorrect to admit it -- they much prefer to talk of fiscal discipline blah blah and blame the other party for deficits, but I suspect most politicians understand the truth, which is why they usually all agree in the end to continue to engage in deficit spending.