The most recent budget deal in Congress was passed because both political sides got what they wanted. The Republicans got their defense spending priority and the Democrats got their domestic spending priority. Deficit spending hasn’t always been the boogeyman, but the issue has been on our fiscal radar for some time. As of fiscal year 2017, our national debt is larger than the gross domestic product, both around 19 trillion dollars.
Deficit spending started to pick up during the Reagan administration and has continued ever since.
Deficit spending matters because it takes money out of the economy in the form of interest payments on our national debt, which is currently 6.8 percent of GDP or $474.4 billion for fiscal year 2017. Every day, treasury notes or bonds are purchased to bankroll our economy, which takes money out of our economy, so there is less money for spending. Some economists say deficit spending doesn’t matter. Why then does the government worry about runaway spending and inflation, which is a real concern?
One can only surmise that deficit spending does matter. The only way deficit spending can be beneficial is by reducing taxes, which stimulates the economy and increases spending. If things don’t work out that way, we will face the likelihood of inflation and higher interest rates, which could spook the stock market. How can we continue to pay billions of dollars a year to cover our national debt without affecting our economy? What if the economy doesn’t grow as expected and we don’t contain deficit spending?