How to Think About the Deficit, the National Debt, and Interest Rates
In magnitudes that Argentines could only dream of, the U.S. government has been spending more than it raises in taxes, and American consumers and businesses have been importing more goods than they have been exporting, with borrowing from foreigners covering much of the gaps. The record budget deficit of about $413 billion for 2004, and the record
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Debt is the opposite of saving. If saving creates the possibility of capital accumulation and civilizational advance, debt is what can reverse it, through the reduction in capital stocks across generations, reduced productivity, and a decline in living standards.
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The first is our best-case scenario, although for the reasons I have noted it is unlikely to describe conditions today, especially in capital-rich countries like the U.S. The second and third ways are unsustainable because they actually destroy value by increasing debt faster than they increase debt-servicing capacity.