Monday, August 22, 2011

debt and deficits.

everything i know about macroeconomics tells me:

• you don't cut government spending during a fragile economic recovery
• you don't hold the u.s. credit rating hostage to defend a regressive tax code that favors millionaires and billionaires
• you don't block infrastructure spending (investment) that could sustain a recovery and increase revenue in the long-run
• and you don't do it all while the cost of government borrowing is at historic lows. (unless, of course, you're willing to make a gullible american public suffer so that you can blame the incumbent president in an upcoming election cycle.)

a couple two three questions answered:

1. where did the debt come from?
2. where did the deficits come from?
3. who owns the debt?

the debt is the cumulative amount of mostly recent budget deficits (as in costs greater than tax revenues within the last decade), which the government has funded by selling IOUs (aka u.s. treasuries), and the sudden increase is primarily due to the decrease in revenues caused by the recession (and not increased spending).

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interesting tidbit: almost 40% of the debt is in theory interest-free, as in it's owned by federal agencies like the social security trust fund or the federal reserve which pays all its profits back to the u.s. treasury, so the government is just paying itself interest. also, it's only half related but i found this interesting: the fed can't go bankrupt.