T Nation

Why Run a Deficit?


I am far from a expert on US financial matters and I am trying to understand why the US ran such a large deficit over the last 30 odd years.

I admit that I get most of my economic knowledge second hand from a mate of mine who is an investment banker (he still has a job so he must be good :slight_smile: ).

From what I am told by him, very short-term deficits are acceptable to avoid recessions or to invest in big, money-making infrastructure but that long term deficit spending is simply stealing from future generations.

I know the above is an oversimplification, but if it is roughly correct then why the long term deficit?

Is the reliance on debt merely due to the fact that the Chinese, Japanese, Saudis and the UK have all been happy to lend? Or is there an economically sound reason to run a deficit?

Are there any more economically minded t-natiners out there who can explain this to me.
Cheers y'all.


Because we're morons.


There are at least 100 people on these forums 100 times more technically qualified to answer this question than I am.

All I now is I've been watching my entire adult life and this society is hopelessly pickled in a true crackhead addiction to debt from the anybody with a credit card to the highest halls of government.

There will probably be payment plans for candy bars soon just so people don't have to break down and pay cash for anything at all.

That little voice has been telling me for years that this cannot be a good thing.

However fasten your seat belt. Maharishi Obama is preparing us for the final chapter. He will both destroy what's left of this economy with his tax grabs and spend us into the next solar system with his galactic socialist payouts. Not just his to be fair.

Congress is just licking their chops waiting to sweep even more of the private economy under their wing using debt as the means.


Because the entire financial system is based on debt. Money cannot exist in circulation without debt.

"If there were no debts in our money system, there wouldn't be any money."
-Marriner Eccles- Governor of the Federal Reserve, 9/30/41


Simple answer....we spend more than we bring in.

Complicated answer...hell if I know.


Because politicians like to lower taxes.
And because they like to hand out presents to their friends. Some throw money at welfare mums, others throw money at their business friends and pretend they're gonna build a missile shield.


From my very limited knowledge, the main problem that can arise is the so-called crowding-out effect.



I don't know how debt paid to foreign countries factors into this.


Because otherwise politicians would have to raise taxes to an unacceptable degree to finance the warfare and welfare state.

Also, look at the crowding-out effect, see abcd post above.

That is something all the people who think government deficit spending stimulates the economy should think about.


Because Americans think it's their God given duty to live a quality of life beyond what anybody is capable of.


I forget his name, and am too lazy to look it up right now, but a founding father of our country said we can establish legitimacy economically if our government went into debt, and paid it off.

At some point it became acceptable to run deficits. This is a result of society learning to live with debt. Since so many people live by credit card, naturally the government does too.

The government is simply an example of us. We may not want to accept that, but it is.

The idea that money is debt, is an oversimplification. Just because money exists does not mean our government needs to have a deficit.

The big mistake people make is to actually think dollar bills are money. Or that gold is "real" money.

But again that is an oversimplification. The fact of the matter is everything is money. Dig up dirt, bag it up, and sell it as top soil. Dirt is money.

Those dollar bills and bank account numbers are only a representation of that value. It is not the real money. And that is why you do not see wealthy people sit on large piles of cash. They buy stocks, real estate, and other assets. (And yes even gold.) If the value of the dollar drops, their asset's real value is not reduced, and inflation has not touched them.

The only real benefits are that we get it now, (whatever it is the government wants,) and an investment is created.

If there was no debt, there would be no bonds, nor would there be any interest on savings accounts, and no more CD's.


But you know what that means, right?

It means that companies would get incredibly cheap credit to invest, home owners would get cheap mortgages and so on....


Alexander Hamilton.

Some foreign debt is really not a bad thing. It is a pretty good protection from an invasion.

We took out loans from the French in the Revolutionary War. They had a vested interest in seeing us win. Plus they hated the English. But once we are victorious, our debt kept them from taking us over.

Now - this is a far cry from the drunken crack whore spending spree that has caused the size of the debt we have now, but a small, manageable debt is a good thing.


A huge problem is Americans have forgotten time proven principles of fiscal responsibility.

Americans have a long history of disliking taxes, the revolutionary war started as a tax rebellion. So we don't have the confiscationary levels of taxes that other industrialized countries have.

Americans can't accept that times have changed and they are not as wealthy as they used to be.

America's deficits are much worse than people realize by the way. Everyone has forgotten that the Federal budget accounting rules were changed back in the nineties so the deficits would not look as bad as they really are. What they did is they started counting deposits into the social security trust fund as revenue, which it isn't. This is a rust fund which eventually has to pay that money back.

It is something to remember when Bill Clinton boasts "we balanced the budget". Clinton is full of shit because if you subtracted the social security contributions there was still a huge deficit.

Now our national debt is so huge that just the interest payments are so substantial that we have to borrow to pay them.

Then there is Americas ultimate sacred cow that needs to be killed off but Americans can't bring themselves to admit the truth. The war on drugs. The war on drugs has been going on since Nixon started it in the seventies and it has been good money after bad ever since.

We spend well over a hundred billion a year on the war on drugs through various goevernmental agencies. We have been runniong government deficits ever since the war on drugs started. If you think about it the entire war has been fought on borrowed money.

The debt service on the trillions of dollars that we have borrowed to pay for the war on drugs so far is another cost. Just as a rough guesstimate say we are paying Five percent annual interest on two trillion dollars, that's another hundred billion a year.

What we needed to do is apply the Powell doctrine to the war on drugs. We should have had clear goals going in so we knew what would constitute victory and we should have had an exit strategy. We have none of this with the war on drugs so it is an open ended quagmire that everyone knows is unwinnable.