U.S. Federal Budget DeficitEssay Preview: U.S. Federal Budget DeficitReport this essayEconomics for Strategic DecisionsU.S. Federal Budget DeficitIntroduction and HistoryThe U.S. Federal Budget deficit is the fiscal year difference between what the United States Government takes in from taxes and other revenues, called receipts, and the amount of money the government spends, called outlays. The items included in the deficit are considered either on budget or off budget. Generally, on-budget outlays tend to exceed on-budget receipts, while off-budget receipts tend to exceed off-budget outlays.
The United States public debt, commonly called the national debt, gross federal debt or U.S. government debt, grows as the U.S. Federal Budget remains in deficit and is the amount of money owed by the United States government to creditors who hold US securities like T-bills, notes and bonds. This does not include the money owed by states, corporations, or individuals, nor does it include the money owed to Social Security beneficiaries in the future. As of April 18th, 2006, the total U.S. government debt was $8.395724 trillion.
The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew and then contracted to nearly zero in late 1834. On January 1, 1835, the national debt was only $33,733.05, but it quickly grew into the millions again.
The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million dollars in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in World War I.
The buildup and involvement in World War II brought the debt up another order of magnitude from $43 billion in 1940 to $260 billion following the war. After this period, the debts growth closely matched the rate of inflation until the 1980s, when it again began to skyrocket.
The public debt briefly started to go down in 2000 when the country had a substantial budget surplus, but began growing again after budget deficits grew large beginning in 2002.
At any given time, at least in recent decades, there is a debt ceiling in effect. If the debt grows to this ceiling level, many branches of government are shut down or only provide extremely limited service. However, the ceiling is routinely raised by passage of new laws by the United States Congress every year or so. The most recent example of this occurred in March of 2006, when the U.S. Congress agreed to raise the National Debt Ceiling to just under $9.000 trillion.
Viewed alternately as a percentage of the GDP, the national debt rose sharply during World War II, reaching about 122% of GDP in 1946. As soon as the conflict ended, the debt began declining, reaching a postwar low of 32.6% of GDP in 1981. The debt then started rising again and peaked at 67.3% of GDP in 1996. It then dropped to 57.4% of GDP by 2001. The debt of the United States is on par with the debt of other developed countries, such as Germany and France.
CausesOpinions on the causes of the U.S. Federal Budget deficit vary greatly. The three that I have chosen to highlight are a decrease in the private saving rates of Americans, productivity growth and a slump in foreign domestic demand.
Proponents of a decline in saving rate are also mainly supporters of the belief in American over-indulgence. Since the mid-1990s, the personal saving rate has declined from roughly 5 percent of disposable income to less than 2 percent, and gross private saving (which includes corporate saving) has edged down from about 16 percent of GDP to less than 15 percent.
The decline in saving rates could reflect a structural shift in household saving and spending behavior. Continued financial liberalization and innovation have made it easier for Americans to borrow, particularly against their real estate wealth, and this easing may have led to greater consumption.
An impressive achievement of the U.S. economy which has contributed to its skyrocketing budget deficit is the surge in labor productivity growth from about 1-1/2 percent annually in the two decades preceding 1995 to roughly 3 percent in the period since then. This surge is viewed as having several important consequences. First, higher productivity growth boosted perceived rates of return on U.S. investments, thereby generating capital inflows that boosted the dollar. Second, these higher rates of return also led to a rise in domestic investment. Finally, expectations of higher returns boosted equity prices, household wealth, and perceived long-run income, and so consumption rose and saving rates declined. Under this explanation, all of these factors helped to widen the current account deficit.
The Congressional Budget Office estimates that the average U.S. economy will need to raise its projected labor productivity by 5 percent to 15 percent by the end of this decade. The Congressional Budget Office estimates that if the U.S. economy is to achieve its potential of increasing the net productivity growth rate of 6.3 percent by the end of the decade, that would add $10 billion to the existing deficit
for the year 2013
–the largest in U.S. history.
While President Obama has pledged in his upcoming State of the Union address that he is “willing to pay attention to the important role that the Federal Reserve plays in our economy,” he also has voiced concerns about the U.S. housing market and the possibility of underwriting the so-called speculative home mortgage crisis. On that front, he has pointed out that the Federal Housing Administration (FHWA), a federal agency that administers mortgages, may be forced to use “quantitative creep” to keep pace with the housing market, with a cost that would increase to $20 billion per year in 2013.
A growing United States middle class, led by young adults who are looking for a way to diversify their wealth into better-paying, secure, better-paying careers, has also found that with this expansion of a young worker’s working and living opportunities, including the opportunity to take on many of the burdens of a career requiring many decades of high-skill training, and the rising importance of career services, the government has been the ideal place to focus on those needs.
While the rise of the manufacturing sector with the exception of the tech sector seems to have accelerated over the past two decades, in fact the current unemployment rate was higher than it was at the beginning of the post-1989 recession. (The median unemployment rate is now 7.9 percent).
The rise is seen by many to have already caused job losses to millions of Americans who have sought additional employment opportunities and jobs elsewhere. In his State of the Union address, President Obama stated that “it is time for the federal government to consider a combination of job creation, growth in the private sector, and growth in the middle class that will pay for our rebuilding of our crumbling infrastructure and our nation’s crumbling infrastructure. In that spirit, and most importantly, I have decided the appropriate combination of our jobs and growth should be more like two distinct paths to the dream of a bright future.” In his Economic and Social Weekly, Eric Mapes said: > “Since then, I’ve known many CEOs who have come up with more powerful rhetoric to appeal to the American public — and to the broader American electorate. […] So I wanted to come out and say to the American public that the job and growth narrative has been hijacked by these politicians. […] In fact, that narrative is being distorted by the political candidates of the two major parties. […] People don’t understand where the American people really stand about how much growth they want, and how long job growth will continue unabated. Instead, they’re saying, ‘We have
The Congressional Budget Office estimates that the average U.S. economy will need to raise its projected labor productivity by 5 percent to 15 percent by the end of this decade. The Congressional Budget Office estimates that if the U.S. economy is to achieve its potential of increasing the net productivity growth rate of 6.3 percent by the end of the decade, that would add $10 billion to the existing deficit
for the year 2013
–the largest in U.S. history.
While President Obama has pledged in his upcoming State of the Union address that he is “willing to pay attention to the important role that the Federal Reserve plays in our economy,” he also has voiced concerns about the U.S. housing market and the possibility of underwriting the so-called speculative home mortgage crisis. On that front, he has pointed out that the Federal Housing Administration (FHWA), a federal agency that administers mortgages, may be forced to use “quantitative creep” to keep pace with the housing market, with a cost that would increase to $20 billion per year in 2013.
A growing United States middle class, led by young adults who are looking for a way to diversify their wealth into better-paying, secure, better-paying careers, has also found that with this expansion of a young worker’s working and living opportunities, including the opportunity to take on many of the burdens of a career requiring many decades of high-skill training, and the rising importance of career services, the government has been the ideal place to focus on those needs.
While the rise of the manufacturing sector with the exception of the tech sector seems to have accelerated over the past two decades, in fact the current unemployment rate was higher than it was at the beginning of the post-1989 recession. (The median unemployment rate is now 7.9 percent).
The rise is seen by many to have already caused job losses to millions of Americans who have sought additional employment opportunities and jobs elsewhere. In his State of the Union address, President Obama stated that “it is time for the federal government to consider a combination of job creation, growth in the private sector, and growth in the middle class that will pay for our rebuilding of our crumbling infrastructure and our nation’s crumbling infrastructure. In that spirit, and most importantly, I have decided the appropriate combination of our jobs and growth should be more like two distinct paths to the dream of a bright future.” In his Economic and Social Weekly, Eric Mapes said: > “Since then, I’ve known many CEOs who have come up with more powerful rhetoric to appeal to the American public — and to the broader American electorate. […] So I wanted to come out and say to the American public that the job and growth narrative has been hijacked by these politicians. […] In fact, that narrative is being distorted by the political candidates of the two major parties. […] People don’t understand where the American people really stand about how much growth they want, and how long job growth will continue unabated. Instead, they’re saying, ‘We have
The Congressional Budget Office estimates that the average U.S. economy will need to raise its projected labor productivity by 5 percent to 15 percent by the end of this decade. The Congressional Budget Office estimates that if the U.S. economy is to achieve its potential of increasing the net productivity growth rate of 6.3 percent by the end of the decade, that would add $10 billion to the existing deficit
for the year 2013
–the largest in U.S. history.
While President Obama has pledged in his upcoming State of the Union address that he is “willing to pay attention to the important role that the Federal Reserve plays in our economy,” he also has voiced concerns about the U.S. housing market and the possibility of underwriting the so-called speculative home mortgage crisis. On that front, he has pointed out that the Federal Housing Administration (FHWA), a federal agency that administers mortgages, may be forced to use “quantitative creep” to keep pace with the housing market, with a cost that would increase to $20 billion per year in 2013.
A growing United States middle class, led by young adults who are looking for a way to diversify their wealth into better-paying, secure, better-paying careers, has also found that with this expansion of a young worker’s working and living opportunities, including the opportunity to take on many of the burdens of a career requiring many decades of high-skill training, and the rising importance of career services, the government has been the ideal place to focus on those needs.
While the rise of the manufacturing sector with the exception of the tech sector seems to have accelerated over the past two decades, in fact the current unemployment rate was higher than it was at the beginning of the post-1989 recession. (The median unemployment rate is now 7.9 percent).
The rise is seen by many to have already caused job losses to millions of Americans who have sought additional employment opportunities and jobs elsewhere. In his State of the Union address, President Obama stated that “it is time for the federal government to consider a combination of job creation, growth in the private sector, and growth in the middle class that will pay for our rebuilding of our crumbling infrastructure and our nation’s crumbling infrastructure. In that spirit, and most importantly, I have decided the appropriate combination of our jobs and growth should be more like two distinct paths to the dream of a bright future.” In his Economic and Social Weekly, Eric Mapes said: > “Since then, I’ve known many CEOs who have come up with more powerful rhetoric to appeal to the American public — and to the broader American electorate. […] So I wanted to come out and say to the American public that the job and growth narrative has been hijacked by these politicians. […] In fact, that narrative is being distorted by the political candidates of the two major parties. […] People don’t understand where the American people really stand about how much growth they want, and how long job growth will continue unabated. Instead, they’re saying, ‘We have
Lastly, domestic demand growth has slumped in many foreign economies because of varying combinations of an increase in saving rates and a decline in investment. This weakening of foreign spending has enhanced the supply of capital available to the United States, put downward pressure on U.S. interest rates, and put upward pressure on the dollar.
Some of the largest industrial economies in the world, Japan and Western Europe, have been running current account surpluses while experiencing very subdued growth. In the developing world, the East Asian economies that went through financial crises in the late 1990s have seen a plunge in their investment rates even as their saving rates have remained extremely high; the weakness in domestic demand has likely motivated the authorities in these countries to keep their exchange rates competitive to promote export-led growth, a strategy that has also contributed to the U.S. deficit. In general, since 1999, the developing countries as a whole have been running current account surpluses, with the industrial countries, mainly the United States, necessarily running current account deficits.
The federal budget and the economy are closely interrelated. The strength orweakness of the overall economy affects the levels of outlays and receiptssubstantially. The budget also has significant effects on the economy, both in termsof how fast the economy grows, and also in