Are we in danger ? Should we be worried?

1. The Relationship between the debt, deficit, and the economyErica Williams Discussants : Anthony morganti Wayne lewis Are we in danger ? Should we be worried?

2. THESIS • Thesis: Due to increased spending of the government it has resulted in the increased risk for Americans, foreigners, U.S. creditor, the economy and the government. • Question: How does the deficit and debt affect the economy?

3. Debt, deficit, economy • The federal debt is the total amount that the federal government owes to its creditors • Creditors include all individuals, foreigners, holders of government debt securities • The federal deficit is the excess of the federal government spending over its revenue • The federal debt typically is determined by the deficit. Each year the deficit is added to debt • The interest on the debt is added to the deficit each year • The debt can decrease the tax revenues which increase the deficit http://www.investopedia.com/terms/f/federaldebt.asp http://useconomy.about.com/od/fiscalpolicy/p/US_Debt_Deficit.htm

4. Background information • $16,787,451,118,147 is the current national debt • 1. 1 trillion is the deficit http://www.concordcoalition.org/us-total-national-debt?gclid=CLLF3OPd-rYCFaQ7OgodMxwA0w

5. Who funding most of the debt ? • More than 40 nations across the globe own American debt • China and Japan own 2.22 trillion of U.S. debt • Russia holds 151 billion of the U.S. debt Mexico and Canada hold 90 million The U.S. government owes most of the money to itself. 41 percent

6. http://www.justfacts.com/nationaldebt.asp

7. How did the debt get so high ? • The Great Recession - The government often increases spending during recessions to stimulate the economy. They often receive less revenues from taxes because less people have jobs creating more debt • Higher defense spending – funding wars and defense spending went up • Increase spending on Medicare and social security • The government continues to spend more than they receive year after year • Past Presidents – some of the past presidents have increased the debt by billions.

8. Who increased the debt ? http://www.google.com/imgres?hl=en&biw=1440&bih=719&tbm=isch&tbnid=m4ra-koPrDGmTM:&imgrefurl=http://sierravoices.com/2011/05/who-increased-the-debt/&docid=SyZt4m5VIVNowM&imgurl=http://sierravoices.com/wordpress/wp-content/uploads/2011/05/who_increased_debt.jpg&w=914&h=665&ei=tiKEUaDwFa6y4APA5oGYDg&zoom=1&iact=rc&page=1&tbnh=144&tbnw=198&start=0&ndsp=28&ved=1t:429,r:0,s:0,i:112&tx=123&ty=46

9. Will the debt affect the economy? NO YES

10. We owe the money to ourselves “People think of debt’s role in the economy as if it were the same as what debt means for an individual: there’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.” – Paul Krugman

11. People save more when debt rise • Ricardian Equivalence • David Ricardo rejected the argument and said parents and individuals save more for the future and their children because government deficits threaten the future • the public will save more money to pay for future taxes and government debt. • Robert Barro developed a argument that when the debt rises people save more

12. It’s the government’s job to spend John Maynard Keynes had set up an economic theory where the government helped the economy through recessions by using their economic resources to rebuild the society. The government could create jobs, lift consumer confidence, and set the economy to recover. Keynes suggested that the government spending was needed even if there wasn’t enough revenue to finance it causing a deficit

13. Government debt causes higher prices • Gas prices have been increasing over the years • Makes it more expensive to borrow , your competing with the government to borrow money, meaning the rate you pay will be higher • Higher interest rates and low investment • Many individuals are going to ne hesitate to purchase a U.S. treasury security because the debt keep going up which can cause the government to default on their investment • In order for people to feel safe to invest higher interest rates are requested

14. Loss of confidence • Foreign investors and creditors of the United States have been losing confidence as the United States debt increases • This can cause many problems as the United States is the world’s economic leader • If the government can no longer borrow from foreigners it causes a big problem economically