BenzWorld Senior Member
Date registered: Sep 2004
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RE: The National Debt
I'm no economist but...
The biggest problem with gov debt is it creates a credit squeeze. Other borrowers, corporations for example, have to compete with the government for the available bond dollar. This leads to a higher cost of borrowing for corporations, and less available capital that would be invested in the buisness which in turn would produce stuff (jobs, products, dividends, profits .....)
This is also reflected in higher intrest rates. As demand for something (money) rises so does it's price (intrest rates) There is a finite pool of available capital. When the government, who is a big consumer, comes in to the market and starts competing for the money it makes the rest of the borrowers pay more.
The other problem with gov debt is that it takes money to service the debt. Every buck the gov spends on intrest on the debt (bonds, notes ect.) is a dollar that could be spent on something else, when the gov has increased expenditures they have only two options, cut spending or raise taxes. We have seen how well they cut spending, so guess whats left.
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