What are the real-world economic consquences of a huge national deficit?

Question

I’m a middle aged dude with a family, own a house, have four kids, investments, all the adulting things.

However, I’m still not sure how a multi-trillion dollar national defecit seeps down to affect my day-to-day life

In: 492

Answer 1

I am going to give a perspective from my home country where you actually had government defaults.

1. The government can pay its debt by printing more money. This creates hyperinflation. Now all the hard saved money you have accumulated over many years will lose 10%, 20%, 50%, 90% of value in a single year. If you don’t have access to a bank, and many people don’t, means you have no means to even partially mitigate the hyperinflation. So your grocery basket will get smaller in size by the week given your wages are not being readjusted in the same proportion.

2. The debt interest can be paid by tax revenue. Thus you can increase taxes to pay for it. Debt is by definition borrowing money from yourself from future to use today. You may benefit from the government services provided by this debt (eg getting your pension paid), but your kids will have to deal with a higher income tax years in the future to pay the interest from the debt you incurred.

3. The government can decide not to pay its debt. You are fucked in a different way because no one will lend the government money. So they either have to offset that by printing money (again) or by cutting expenses, like your mom’s pension. And your dad may lose your job because the company he works for has some of its cash in government bonds which just got defaulted, therefore they don’t have the money for payroll and have to close business.

Oh, and in this case some people may support the office in the government, because after all they defaulted their debt with the “evil banks” who lended their money. Too bad they don’t know the banks money does not belong to Scrooge McDuck, it comes from your mom and pop savings account and your low yield investments. So you are fucked and your neighbors are applauding this. And they will ask you to lend them money because they lost their jobs.