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Federal Deficits, Debt and Interest Costs
Author(s) -
Van de Water Paul N.,
Ruffing Kathy A.
Publication year - 1985
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/1540-5850.00672
Subject(s) - interest rate , debt , treasury , federal budget , economics , debtor , monetary economics , deficit spending , government debt , gross domestic product , economic policy , macroeconomics , finance , political science , creditor , law , fiscal year
Current federal government deficits are of a size unprecedented since World War II. While budget surpluses have been infrequent, deficits before 1982 were small enough that the federal debt shrunk in relation to the size of the economy. Now, however, the federal deficit is stuck at about 5 percent of gross national product, and the ratio of federal debt to gross national product (GNP) is growing rapidly. These large deficits are driving up interest rates, hurting American exports, turning the United States into a debtor nation, and causing government interest outlays to spiral. The possibilities are limited for lowering interest costs through directly reducing interest rates or introducing new Treasury debt management strategies. The only way to cage the interest monster is to enact a substantial package of tax increases and cuts in noninterest spending. We list some possible elements of such a package and show how they might be combined to tame the growth of debt.