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Originally Posted by beastalamode
Hey could someone explain to me why deficit spending is good? Having to pay 500 BILLION (and rising) in interest payments every year seems foolish to me. Everyone complains about our military budget but at least we get something back for what we spend.
Debt is not necessarily a bad thing, growth can occur at a more rapid pace by spending a little more than you have. If you do this 50 years in a row in a responsible fashion, the debt will have increased a lot, but the percentage of GDP will be similar as it was to the beginning. You would have a much more advanced society than if you did not incur any debt.
You must also look into public and private debt in an economy and evaluate them together, often the people who hold the government's debt are its own citizens, so a large public debt can be offset by the private sector as the citizens are wealthier as a result. Canada is an example of a country with a relatively small public debt, but its private debt is very significant which raises concern.
Think of the country like a company that can increase its return on equity by carrying debt.
Problems occur when overall debt starts increasing too much, then if a crisis occurs you are restricted in what you can do to weather the storm as the debt may reach levels where the interest payments are greater than the benefit you receive from having a leveraged economy. You might have a death spiral occur at a certain point as well as the larger debt causes the country to pay a higher interest rate on their debt as their credit quality decreases making the country issue more and more in order to pay for the higher and higher interest rates they cause (Russia defaulted in the late 90s)