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Fiscal Policy & Our National Debt
What is “fiscal policy”?
What is our current national debt?
What can be done to solve this problem?
• Avoid occasions of expense. . . and avoid likewise the accumula7on of debt…not throwing upon posterity the burden which we ourselves ought to bear.”
• George Washington
How does the US government influence economic ac6vity?
• The US government is a full player in the US economy just like any other economic par6cipant
• Fiscal Policy = Use of government revenue (taxes) & spending – Distribu6on of income – Savings / Investment – Government programs /
services – Debt
4
$55,644 Burden
That’s the current burden of every American citizen
(including newborn babies) if we had to pay of our national
debt TODAY!!!
Consider this…
What types of debts does the US owe?
• The annual imbalances between revenues and spending in our government is known as a “deficit”
• Debt: The accumulation of deficits over time • Public debt: U.S. government money held by individual
Americans and foreigners • Debt held by other financial entities: debt to finance a
loan to a private entity in which government acquires a financial asset
• Inter-governmental debt: Held by government trust funds (e.g., Social Security) and other accounts
What is the history of our na6onal debt?
• The US has developed a na6onal debt since before we were a country – Pre-‐1776
• Reasons: – War costs – Internal improvements – Social programs
U.S. Budget Deficits/ Surpluses, 1929-2010
Years, 1961-2008
Deficits rose from 0 in 1969 to $340 billion in 1992. U.S. budget had $86 billion surplus in 2000 Deficits rose to $568 billion in 2004 and $1.8 trillion in 2009.
National Debt, 1940-2009
What are “unfunded liabilities”? • Unfunded liabilities are
benefits promised to be paid in the future without a viably source of income • Social Security • Medicare
• Total U.S. unfunded promises: $56 trillion • Equal to the total net
worth of the US
What are our projections for the future?
• Projections of future deficits and debt are based on assumptions, such as:
– Economic growth or recessions – Changes in spending and tax
policies – Population trends – Workforce participation rates
• History shows that assumptions and projections are often wrong
How does long term debt effect our everyday life?
• The burden of long-term debt will fall on America’s younger generations – Drastically higher taxes – Cut / loss of benefits – Lower living standards – Fewer choices for public
spending – ALL OF THE ABOVE
• Conclusion:
– Working longer – Paying more taxes – Fewer options
Like the idea of working old?
The 2008-2009 Economic Crisis and Soaring Federal Deficits
Deficits up from $455 billion in 2008 to $1.8 trillion in 2009 due to Federal spending associated with the “Great Recession”
Where the Money Goes: Traditional Federal Spending Policies
What foreign countries own interest in our debt?
• 25% of our na6onal debt is foreign owned – China (31%) – Japan (27%) – Belgium (15%) – Other par6es (27%)
• As of 2014, the US Treasury es6mates that the US owes $1.253 trillion to China ALONE !!!
Percent of Debt Held by the Public (Owned by Foreigners)
The US Debt “Ceiling”
Overview of the Federal Budget Challenge 19
Has the US overextended itself?
Overview of the Federal Budget Challenge 20
Overview of the Federal Budget Challenge 21
What are we going to need to do to get out of our current situation?
– Which Federal programs and policies should be changed and how?
• Entitlement programs • Unfunded spending • Tax policy
– How can budget processes and controls be reformed?
– What should be the major goals of government,
business and individuals in U.S. economy? • Investing in the future (education,
infrastructure, science, environment, etc.) • Providing income security and good living
standards • Providing health care for all Americans
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