High Budget Deficits
America's growing budget deficit is one of the most debated subjects in American politics. While everyone agrees that the deficit must be reduced, there is little agreement between Republicans and Democrats on how or when to accomplish the job (Buchanan, 1999-2012). High budget deficits can be detrimental to this nation, impacting our economy in a negative way.
Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future. None of the research that has been conducted so far is meant to suggest that debt and deficits can be run up indefinitely without consequence. For instance, seeing little reaction by interest rates to deficits should not imply that deficits do not reduce national savings. Capital inflow from abroad is evidence that high budget deficits can lower savings rates in the United States. A country with a low saving rate imports capital, and that is what has occurred. High budget deficits reduce national saving and capital formation. This in turn, lowers the growth rate for a long period of time and permanently lowers the level of real income and the real standard of living affecting the economy (Slivinski, 2010, p. 4).
Government borrowing in order to compensate for high budget deficits can cause interest rates to rise. When the government borrows heavily, this is an indication that there is less money available for everyone else. The laws of supply and demand make the money more expensive in the form of rising rates. Higher interest rates can limit private investment, which can have a negative effect on the overall economy, its future growth and future living standards (Buchanan, 1999-2012).
A significant problem with borrowing to meet national obligations is that many buyers of America's Treasury-issued securities are foreign countries, institutions and individuals that do not necessarily re-invest America's interest payments back into America's economy. In...