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National Debt. Budget Deficit – The amount by which expenditures exceed revenues (G>T) - $186.5 Billion (2007) Budget Surplus – The amount by which revenues.

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Presentation on theme: "National Debt. Budget Deficit – The amount by which expenditures exceed revenues (G>T) - $186.5 Billion (2007) Budget Surplus – The amount by which revenues."— Presentation transcript:

1 National Debt

2 Budget Deficit – The amount by which expenditures exceed revenues (G>T) - $186.5 Billion (2007) Budget Surplus – The amount by which revenues exceed expenditures (T>G)

3 National Debt: The total amount owed by the federal government It is the sum total of all budget deficits we have run minus all budget surpluses

4 National Debt as of 3/13/2008 $9,408,066,260, (That’s $9.4 Trillion), or $31,000 per person in the US

5 Debt Held by the Public $5.3 Trillion Intergovernmental Holdings $4.1 Trillion

6 Intergovernmental Holdings – ex: Social Security Trust Fund

7 Debt Held by the Public $5.2 Trillion Owned by: Foreigners: $2.33 Trillion Local G: $546 Billion Pension Funds:$364 Billion Mutual Funds:$307 Billion Insurance Co’s:$164 Billion Banks:$118 Billion

8 History of the Debt

9 Debt as a % of GDP Japan164% Italy106% Euro Area 79% US 64.8% Switzerland 57% UK 40% Australia9%

10 The impact of the national debt: 1. Higher debt levels will lead to higher interest rates a. hurts capital accumulation b. hurts borrowers 2. Higher interest rates will lead to higher interest payments on debt

11 3. Higher debt may lead to higher taxes on future generations - if the debt is owed to Americans, its repayment will redistribute wealth within the country

12 If the debt is owed to foreigners, then wealth will be redistributed out of the US

13 Notes on the debt: 1. We never have to pay off the debt, per se 2. The burden of the debt on our economy would be lowered if our GDP grows faster than our debt

14 Debt to GDP in US % % %

15 Graph of Debt to GDP

16 Current Budgets as a % of GDP UK-3.2% US-2.4% Japan-2.7% Euro Area-1.0% Canada+.6% Australia+1.5% Norway +17.9%

17 Balanced Budget Amendment – A change in the US constitution to require that G=T every year It would outlaw budget deficits and budget surpluses. It would also outlaw fiscal policy

18 It passed the US House in 1995 but failed in the US Senate

19 Most states have a balanced budget requirement It means that they have to cut government spending when tax revenues fall

20 Pros: 1. It would reduce the US debt/GDP ratio over time 2. It would provide a fiscal restraint for short-sighted politicians

21 3. It requires politicians to examine the full cost of their spending policies 4. It would help the US increase its overall savings rate

22 Cons: 1. It would outlaw fiscal policy 2. It could increase the volatility of economic contractions and expansions

23 3. It would not allow for emergencies such as war 4. It would make debt for capital purchases more difficult – not all debt is equally bad


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