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The US government has run a deficit budget every year since 2002.

As per this answer, in FY2012, the budget deficit was $1.12 Trillion while revenue was $2.47 Trillion.
That was a budget deficit of over 45%, a full four years after the 2008 financial crisis started.

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After that, the budget deficit decreased until 2015, but then started increasing at a very high rate until 2019, and exploded in 2020 and 2021 (as expected). However, it was still extremely high in 2022 (approximately 30% of the revenue), despite the fiscal policy intending to decrease spending.

Where does the government get this money from? I believe a large part of it is through loans/bonds. Won't such a tremendous rise in debt lead to future interest payments skyrocketing? It might even be possible that a large part of future budgets is just interest payments for all this debt!

Why is the US government not worried about such a high deficit? Is it not a problem at all?

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    if you search only a bit more you can easily find the percentage that interest payments make of the debt. why some/many don't care is probably more difficult to summarize. N.B. it seems to be around 5%, slated to rise to some 11% by 2031. thebalancemoney.com/interest-on-the-national-debt-4119024 TBH I'm not sure whose numbers to trust, as the CBO seems to give lower ones pgpf.org/analysis/2022/12/… Jan 21, 2023 at 14:29
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    You have several different questions here. Are you only asking the last one? Jan 21, 2023 at 16:01
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    Never heard of COVID? It explains the situation since 2020. Are you asking why the US spent so much combatting its economic effects?
    – Stuart F
    Jan 21, 2023 at 17:38
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    When you say "the government" - do you mean elected officials or voters? I think elected officials don't care because not enough voters care. Why voters don't care is a much more interesting and nuanced question. Jan 22, 2023 at 2:56
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    It's interesting how deficits go down when the Democrats are in power (Clinton, Obama, and now Biden) but go up when Republicans are in power. Yet it's Republicans who are the ones who inevitably cry that the deficit sky is falling. Jan 22, 2023 at 11:03

3 Answers 3

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Many reasons.

  1. If the economy grows faster than the deficit, then the burden becomes actually lighter over time. And indeed the US economy grew a lot in 2012-2020. So display deficit rather as percentage of the GDP. Here is the data.

  2. Interest rates were historically extremely low. Close to 0% on US treasuries during the years 2010-20. With low interest rates, you basically get money for almost free (still you have to return it at some point).

  3. The reason for the large deficit wasn't a depression. Taxes were cut heavily in the past but spending wasn't cut too. The difference was the increasing deficit. Politicians and voters must have decided that this is the best (eating the cake and have it).

  4. And indeed why not, latter generations can still introduce taxes on wealth or reduce spending and pay back the debt, or as long as lenders are willing to lend, live with the situation or even take on more debt. Just think about the deficit as taxes not yet collected. As long as the national wealth minus the debt remains positive, the nation isn't broke.

  5. And even if lenders become less willing to lend over time, the US debt is held in USD. Printing money by the treasury would be an option to inflate the debt away (unless the debt is linked to inflation, which largely isn't the case). Already now past lenders to the US basically lose money (effectively handing it over to the government) because the inflation rate is above bond interest rates they get on the bonds they hold.

Overall the risk for a debt crisis is still very low and historically voters seemed to like deficit spending most. For a comparison see that some countries have introduced deficit limitations even on constitutional levels (e.g. Switzerland) and that kind of forced politics there to follow other policies. Although during pandemics or wars such rules were ignored again.

And finally, one has to take into account also that many people have difficulties seeing through the subtleties of taking on new debt, raising taxes or cut spending and how each influences the future economic development. They might just decide that they do not care much about debt in general (maybe even less than they should) just out of ignorance.

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    There’s another possible outcome: the USD losing its status of being a reserve currency and thus forced to either suffer hyperinflation or tighten the belt… kinda like most other countries are forced to. Jan 22, 2023 at 1:24
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    I feel like there's a (possible?) fallacy in this answer. It seems to assume that the laws proposed and passed by the US congress and the regulations and other actions of the executive branch are chosen rationally and with the best interests of the country and/or government in mind. I think an equally likely or even more likely answer is that voters don't care about the debt, so politicians don't care. I think it can be easily established that many members of congress don't even understand many of the economic reasons you've outlined here. Jan 22, 2023 at 2:54
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    @ToddWilcox There's at least one other party to consider: lenders. People, mainly in financial institutions, still buy Treasury bonds because they expect the U.S. to be able to pay back the bond with interest. Evidently, they don't care about the deficits either, because they keep lending the U.S. money. If the national debt grew to a point where the interest payments were a burden on the budget, then bond sales would slow way down due to increasing interest rates. This would put a halt on increased spending since there wouldn't be any money to spend.
    – Mark H
    Jan 23, 2023 at 11:58
  • @MarkH But couldn't in that case the government lend money to itself if other lenders are reluctant? Only if people exchange their own currency into a foreign one it becomes difficult (see Argentina and many such cases) but even then one could impose capital controls. I don't say this works great, but even private lenders aren't strictly required. What is required is the trust of the people and a national wealth that exceeds the national debt. Jan 23, 2023 at 14:52
  • @ToddWilcox Added a paragraph about it although I don't think that people have no idea about what debt is or what it means. After all debt is something many people will have first-hand experience with and intuitively it should be clear to everyone that debt is generally not as good as not being in debt (all other things kept equal). Jan 23, 2023 at 14:56
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The government is in fact concerned about it, the problem in large part is that those elected to government positions to make fiscal policy have diverging interests from one another, and their collective inability in an age of hyper-partisanship to find compromise leads to a whip lash effect that only serves to exacerbate the problem.

One of the two main political parties is not willing to budge when it comes to spending on entitlements, and the other isn't willing to budge on increasing tax revenue. It is indeed a strategy of many American Conservatives to "Starve the Beast," that is to attempt to force capitulation of some sort on entitlements through denying funding. At the same time, it is also an absolute imperative for Progressives to ensure that government programs that people have paid in to for the majority of their working lives are still around for them in a meaningful way when it's their turn to take advantage of them.

Given that most politicans would rather enjoy the fruits of their political labor by keeping the Federal Government around for a while, the only give and take it seems possible between the two parties when negotiating spending bills seems to be leaving both entitlements and tax rates largely untouched. Even when negotiations aren't strictly necessary during single party rule, the party in charge can't seem to find a feasible path towards backtracking on the other party's successes during their tenure, looking instead to enact successes of their own (see: Obamacare, Trump's Tax Cuts). This is even when the backlash to the other party's success could arguably be the major contributing factor to such single party rule in the first place. Because of this, what winds up happening is that spending is generally expected to increase during a Democratic majority, followed by decreasing tax rates during a Republican majority, neither of which ever get reversed.

Where does the government get this money from?

Generally by selling US Treasuries, aka "Treasury Bills", "T-Bills", and US Savings Bonds. These are government-backed securities that are basically IOUs from the government, you give them your money and they promise to pay you back at a later date with a set amount of interest. These are also bought and sold between private parties on the open market after initially being purchased directly from the government. "Treasuries" are generally only referred to when bought from the Federal Government, but states and municipalities also sell things referred to as "bonds" ("municipal bonds" aka "muni bonds" are ways local governments sometimes raise money for large infrastructure projects). If you wish to loan the U.S. Government some of your money (or just learn more about it), you can do so here.

Won't such a tremendous rise in debt lead to future interest payments skyrocketing?

"Skyrocketing" is a bit of a loaded term, but see this quote from the CBO's Budget and Economic Outlook report from May 2022.

Beyond 2032, if current laws remained generally unchanged, deficits would continue to grow relative to the size of the economy over the following 20 years, keeping debt measured as a percentage of GDP on an upward trajectory throughout that period. Those large budget deficits would arise because outlays—particularly for interest on federal debt and for Medicare—would grow steadily under current law, and revenues would not keep pace with those outlays.

The CBO always assumes that "current laws remain generally unchanged" in their estimates. Because of some of the reasons given in @Trilarion's answer, it is entirely impossible to tell the future. There's also always the chance for Black Swan events to occur, such as a worldwide pandemic or some form of easy-to-use fusion technology discovery that could dramatically alter anyone's forecast in either direction.

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    Looking at European countries and Japan we can predict that Medicare and Social Security funding problems will eventually be resolved by increasing the age of retirement. Jan 22, 2023 at 1:26
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    @JonathanReez That's entirely plausible, given that it already happened once before. Because of how complicated calculating Social Security benefits are, there's quite a few tweaks and levers to pull people toss about that one can argue lead to an "increase to the age of retirement".
    – user5155
    Jan 22, 2023 at 1:34
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    @JonathanReez Raising the retirement age certainly is a possibility. Then again, so is increasing tax penalties on retired people who are receiving Social Security / Medicare benefits but are also taking out 401k / 403b / etc. distributions. So is increasing the cost of Medicare Part B or making it so that copays are higher (and hence government costs are lower). All kinds of things are on the table. Jan 22, 2023 at 10:48
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They are! The problem is, what are you going to do about it, when spending less / taxing more leads to you getting voted out?

Humans in general are near-sighted, where gratification today is worth more than the pain of tomorrow. That's why reducing usage of fossil fuels (and seriously addressing climate change as a consequence) is not something governments want to do, and why borrowing money to create jobs & develop the country & stimulate the economy is so popular. It's the people of the future paying for it, and by the time that debt actually needs to be paid, it's no longer a problem for the politicians of today.

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  • I agree with this answer except for the last statement. I would argue that such policies do not get paid for by future generations - they get paid for by inflating the debt away and/or currency devaluation.
    – dm63
    Jan 25, 2023 at 12:10
  • @dm63 The difference being? Jan 26, 2023 at 12:02
  • The difference being raising taxes and cutting social security versus inflation.
    – dm63
    Jan 27, 2023 at 6:31
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    @dm63 The difference being? Either one is a cost paid by the future. Jan 27, 2023 at 11:18

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