Question: In August 2018, the U.S. federal deficit topped $780 billion and the national debt grew to more than $21 trillion. (You can find real-time numbers for the deficit, debt, and much more at US Debt Clock.) The Congressional Budget Office (CBO) projects federal deficits to average $1.2 trillion per year for the years 2019-2028 if current laws do not change, adding another $12 trillion to the national debt over the next 10 years. In 2018, federal debt held by the public was 78% of GDP, with the CBO projecting that to rise to more than 96% by 2028. In an April 2018 report, the Cato Institute stated that the United States is the only advanced country expected to show an increasing debt-to-GDP ratio through 2023*.
- What are the economic consequences of a rising federal deficit and national debt?
- Should we be concerned about the sizes (and projected increases) of the deficit and debt? Why or why not?
- Who exactly do we owe this money to, and does this make a difference in terms of our level of concern?
- What can the government do to reduce the deficit numbers? Be specific, explaining how the numbers would be reduced, and if the government actually should use these methods of deficit reduction.
*Source: Ryan Bourne, “US Only Country With Projected Rising Government Debt to GDP Ratio Through 2023,” cato.org, April 19, 2018.
Answer: The rising deficit will affect the bond markets and cause a spiral of debt…….