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
In terms of government spending, nothing on its own. Having a high deficit or debt straight doesn’t matter.
The problem is if your government can continue making payments on interest from the debt. If they cannot, their credit will degrade, which will make getting loans to pay the debt more difficult, and ultimately will require some kind of austerity or a debt crisis will occur. In a debt crisis your currency becomes worthless, so high inflation, and as you cannot finance additional deficit spending you must implement more austerity. Austerity means that your economic growth decreases as government transfers, infrastructure projects, and pensions are reduced. These combined mean fewer people get their money and therefore aggregate demand decreases. This decreases revenue, which then decreases your ability to reduce the deficit, thereby mandating more austerity.
Austerity of this level isn’t something the American public, as an example, has ever had. Reducing spending while increasing taxes would mean you spend less, get less public services, and pay more in taxes. You end up in an economic death spiral until the IMF, bankrolled by western countries, bails you out. These loans require strings which theoretically improves your ability to grow your business community.
Overall though, if you pay interest, you’re fine.
If you meant trade deficits then the answer is kind of nothing in pure economic terms. Being a net importer of goods means you have a stronger finance sector and currency and allows you to focus on competitive exports.
Latest Answers