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National Deficit

edro

edro

Lifer
Can someone give a quick explanation of what the national 2 Trillion $ deficit is? If our country runs fine in a deficit, why should we pay it back? Who do we pay it back to? Why don't we just "cancel it" and start from 0 again? Who would repremand us?

I am an economic n00b.

It's not like I go to the Post Office and they say "Sorry, we can't send your package today, the country is in a deficit."
 
Simple answer:
It's money that the US government owes to other people and governments. Simply put, if the US government defaulted on all of it's loans the world economic structure would collapse.
 
The majority of the national debit is money borrowed from the American public. The government sells savings bonds, which mature over time to some specified value. So, I could go buy a $250 bond, and the government would promise me that when the bond matured in 15 years (or whatever the time period was) that I could cash it in for $500 (or whatever the value is set as). The $250 is a loan I made the government that they promised to pay back. I'm sure there are other examples of loans made by the people or by companies to the government other than savings bonds.

However, the end result is this... as long as the American public has confidence in the government that they will pay their loans back, the deficit really doesn't matter. It is when people loose confidence and everyone tries to cash in their loans all at once that we will have a problem. Same thing for banks...

Ryan
 
Originally posted by: edro13
Can someone give a quick explanation of what the national 2 Trillion $ deficit is? If our country runs fine in a deficit, why should we pay it back? Who do we pay it back to? Why don't we just "cancel it" and start from 0 again? Who would repremand us?

I am an economic n00b.

It's not like I go to the Post Office and they say "Sorry, we can't send your package today, the country is in a deficit."
Click to expand...

The deficit is the yearly shortfall, the debt is the accumulated shortfall. If you want to read some interesting facts about it, Andrew Tobias talks about it in the back of his book, "The Only Investment Guide You'll Ever Need." The section covering the deficit and the debt is rather small, but it is concise and it debunks a lot of the myths surrounding it. Borrow the book if you just want to read that part, but the whole thing is worth reading.
 
It's what happens when you want to buy votes with tax cuts and also buy them with increased social programs 🙂
 
Like rgwalt said, the government owes most of the deficit to people/companies in America. In addition, many countries owe us quite a bit of change. Hard to keep the bill low, when nobody else can pay up.
 
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