What are the negative effects of a federal budget surplus?

Question

Ever since Bush took office people have been deifying Clinton for his late 90's economic prosperity. It seems to me that Clinton is taking credit for things that were effects of economic plans created during Reagan's administration. What's the deal with the Clinton budget surplus and in macroeconomics, what are the negative effects of a surplus?

Answer 1

Government surpluses slow the economy, taking some of the burden off the FED to fight inflation. Governments running a surplus in economic good times has no downside and should have the effect of delaying the next downturn in the business cycle. Running one during a recession would delay recovery, but the government automatically runs a deficit during recessions because of lost tax revenue.

Since we are now at the peak of the business cycle the current deficit will increase if a recessing occurs. Already almost 19% of the budget is spent on interest payments on the debt and an increase further burdens future taxpayers. If the government had had a surplus or even been in balance after the recessions in the 80's under Reagan, Bush's budget would be in balance even with the war. Compound interest works !

Even if you attribute the economic state of the nation to presidents, which is overdone, determining the lag time of policy effects to be that long is fanciful, but the debt left behind is real.

Answer 2

basically people are bowing down to clinton for running the country into a surplus because bush has been running the country into a huge deficit. bush doesn't seem to understand that when he spends (a lot - i.e. government funding for the military and the war, etc), he needs to have taxation or some other way to balance out the spending (usually raising taxes is the way to go).

as far as i know, i don't think there really are any negative effects of a budget surplus. some of the surplus may have been because of reaganomics, but the economy was in a good state when clinton took office, so not all of it is attributed to reagan's years.

Answer 3

Government surplus will push the value of the money upwards, relatively it is push people to consume more because in reel values their buying power goes up. Actually the real value of the money in your pocket will not change. Also due to increase in value of the money, interest rates shift downwards. And it will courage people to get more credits or loads or mortgages because they think this shift is the nice buying possibility.

Now check the situation, in Clinton term USA economy had surplus, because of brand names and services that USA provides to the world. Interest rates was low and many people get a lot of credit and loan and mortgage.
In the Bush Term, USA gets in the war, and spend lots of money to the war. What happened is USA needed to print more money, mints started to work over time, this shift the value of the USD downwards and interest upward.
Short-term interests and loans taken in the Clinton term cleared, however long-term debts, loans and especially mortgages become a huge problem for banks and financial companies. They couldn't collect the money that they landed because people bankrupted or run-out of business.
Now it is the banks and big finance companies turn to go bankrupt, look at American home mortgage company for example...

Answer 4

My over simplified answer is, If Gov’t has a surplus, it means they took too much out of the private sector. Fact: Money in the private sector grows, money in the hands of the Gov’t is stagnant. For more in depth information see: March 15, 2005
The Impact of Government Spending on Economic Growth
by Daniel J. Mitchell, Ph.D.
Backgrounder #1831 http://www.heritage.org/Research/Budget/bg1831.cfm