I saw this today:
“The United States federal debt is forecasted to grow to a record 202% of the gross domestic product by 2051, the Congressional Budget Office reported on Thursday, reflecting healthcare and debt services cost growth. The national debt for 2021 is estimated at 102%.”
So I’m curious, if the U.S. is in so much dept (I think a lot of countries are?) How doesn’t it run out of money?
In: Economics
“Debt” and “Deficit” are different things and a lot of people seem to get that confused. ‘Debt’ is what the US owes to other countries. ‘Deficit’ is the shortfall between tax revenue and expenditures. (If there’s more revenue than expenditures, they refer to it as a ‘surpluss’.)
Anyway, as far as the deficit is concerned, since that is what most people are concerned with (especially since healthcare was mentioned) there is no such thing as the Federal Government ‘running out of money’. It cannot declare bankruptcy.
Effectively, taxes are collected and then written off. (The fund are debited from the source bank account and exist only as a record showing that the tax was paid. The US Treasury doesn’t deposit that money anywhere.) At the same time, the Treasury creates new money at the direction of Congress. If more money is created than collected, this imbalance leads to an increase in the supply of currency which eventually (not immediately) leads to inflation. To prevent that, another organization, the US Federal Reserve, collects interest on Federally backed bank loans and writes it off to remove it from circulation. (Some of that interest is used to pay the bills, payroll, fund other loans, but a specific calculated amount is permanently removed from the economy.)
It seems a bit far fetched, but currency in the US is actually not a closed-loop system like a lot of people seem to think it is.
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