Posts Tagged ‘Budget Deficits’
Sunday, February 21st, 2010
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The use of fiscal policy to stimulate the economy during recessions requires that the government have budget deficits, with government expenditures larger than tax revenues. Where will the necessary money come from to finance such deficits? There are two possible sources of funds to finance budget deficits.
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Tags: Auto Finance, Budget Deficits, Chrysler, Chrysler Town, Country 2010, Economy, Edmonton, finance, Fiscal Policy, forex, Government Budget, Government Expenditures, Money, Necessary Money, Recessions, Sources Of Funds, Tax Revenues, Town Country, Tw, Winnipeg
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Sunday, February 14th, 2010
Rather than merely hiring the unemployed to do work of little value. For example, tax cuts increase consumer spending, which stimulates many industries. Also, the effects of government spending (such as on a public works project) will spread, via the multiplier effect, through the economy, increasing consumer spending, too. Also, by generating a more favorable economic climate, these efforts by the government can result in increased business investment spending. Thus, the effects of budget deficits designed to stimulate employment will be felt all through the economy, from the toy industry to the construction industry – not merely in the hiring of the unemployed by the government.
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Tags: Auto Finance, Budget Deficits, Business Investment, Chrysler, Chrysler Town, Construction Industry, Consumer Spending, Country 2010, Economy Government, Edmonton, Favorable Economic Climate, Fiscal Policy, forex, Government Spending, Multiplier Effect, Stabilizing The Economy, Tax Cuts, Town Country, Toy Industry, Winnipeg
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Thursday, February 4th, 2010
While it is true that the net federal government debt rose from about $3 billion in 1939 to over $22 billion by 1975. In practice, it is common for budget deficits to be financed by a combination of borrowing and “printing,” a practice that can be economically beneficial as long as the “printing” of money is kept within reasonable limits.
Part B: The National Debt
We have seen that the use of government fiscal policy to stimulate the economy during recessions requires that the government borrow money (mostly through bond issues) in order to finance its budget deficits. The total amount of federal government debt thus incurred – the amount of money owed by the federal government – is called the “National Debt.” By 1983 the National Debt will amount to over $100 billion, or nearly $4000 for every man, woman, and child in Canada.
The National Debt has, over the years, been the subject of a great deal of misunderstandings, fears, myths and political hypocrisy. Many Canadians believe, for instance, that the National Debt is owed to other countries and that Canada may go bankrupt because of it. Both of these are myths. On the other hand, few Canadians appreciate the real dangers concerning the National Debt. We will examine first the myths, then the real dangers.
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Tags: Amount Of Money, Auto Finance, Bond Issues, Borrow Money, Budget Deficits, Canadians, Chrysler Town, Country 2010, Economy, Edmonton, Fears, Federal Government Debt, Fiscal Policy, Government Money, Hypocrisy, Keynesian Policies, Man Woman And Child, Misunderstandings, Money Owed, Myths, National Debt, Printing Money, Recessions, Town Country, Winnipeg, Woman And Child
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Monday, February 1st, 2010
This concern is often expressed in the words that “any business that ran that way would go broke.” Sometimes the reference is to government inefficiencies and waste, which no one condones, but often the reference is to budget deficits and the rising National Debt. However, the matter is not that simple. Most successful businesses accumulate not only productive assets but also more and more liabilities, or debt, reflecting the money that was borrowed to finance those assets. Businesses do not regard such a situation as bad management; indeed, the acquisition of the assets can be financially beneficial to the company by increasing its profitability.
Just as a growing economy requires more private productive assets, such as factories and equipment, it requires more social assets, such as roads, hospitals and schools. Both private and social assets are typically financed by borrowing, so that the debts of businesses and governments (as well as households) have risen. The simple fact that these debts have risen in no way proves mismanagement on the part of governments or businesses or households in general.
Another problem that contributes to misunderstandings concerning government deficits is that many people confuse a government budget deficit with business “loss.” Some types of government budgets lump together all spending – for “current” purposes such as payroll and “capital” purposes such as airports – so that, whenever social assets are bought or built, the government’s budget shows an excess of spending over the current year’s tax revenues, or a deficit. By contrast, a business’ income statement does not include “capital” expenditures, on items such as plant, as current expenses, and its balance sheet shows its assets as well as its liabilities (or debt). Governments’ budgets generally show the liabilities without showing the corresponding assets.
Furthermore, no business has the responsibility to prevent recessions in the economy, and deficit spending – financed by borrowing – is a proven method of fulfilling that responsibility. Rising unemployment gives the government the choice of either ignoring the problem or using deficit spending to combat it. Considering that the government is responsible for maintaining “full employment,” it could well be argued that good management sometimes requires the government to have budget deficits.
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Tags: Bad Management, Budget Deficits, Business Income, Business Loss, Capital Expenditures, Capital Purposes, Government Budget Deficit, Government Budgets, Government Deficits, Government Failure, Inefficiencies, Mismanagement, Misunderstandings, National Debt, Page Rank, Productive Assets, Recessions, Simple Fact, Social Assets, Tax Revenues, Types Of Government
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Monday, January 18th, 2010
That depends largely on how the budget deficits are financed. If they are financed by printing money, there is a real danger that rapid increases in the volume of money in circulation (the “money supply”) will cause rapid inflation. This is the most obvious danger in excessive budget deficits, and the one with which most observers are familiar. However, there is another, more subtle, danger in excessive budget deficits: they can also contribute to slow economic growth, or economic “stagnation.”
The Perils of Budget Deficits
Budget deficits can be likened to drinking liquor, in that if they are properly timed and used in appropriate quantities, they will not be harmful and in fact can be beneficial. However, as with liquor, excessive budget deficits can have severe side effects, including a “hangover” of severe inflation accompanied by stagnation, or “stagflation.” And, like a hangover, it can be considerably easier to get into this situation than it is to get out of it.
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Tags: Auto Finance, Budget Deficits, Circulation, Economic Growth, Economic Stagnation, Excessive Budget, Hangover, Inflation, Liquor, Manitoba, Money Supply, Observers, Perils, Printing Money, Quantities, Rapid Increases, Stagflation, Winnipeg
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Friday, January 15th, 2010
If the government were too anxious to stimulate the economy out of a recession, it might use excessively large deficits. This danger tends to be more severe before elections, when the government may be anxious to reduce the unemployment rate quickly before the election. “Another possibility is that government spending may outrun tax revenues (perhaps due to a combination of high government spending and/or unwillingness to increase taxes), causing budget deficits even during an economic boom, when the economy does not need stimulation.
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Saturday, January 2nd, 2010
For many years following the Great Depression of the 1930′s, the focus on economics was on recession, and the main concern of economic policy was to combat recession. The key elements of this elements were “Keynesian” fiscal policies, particularly budget deficits to boost aggregate demand and lift the economy out of recessions. Fiscal policy was regarded as the active ingredient of economic policy, whereas monetary policy was seen as playing a secondary role, attracting much less attention.
Since the early 1970′s, however, the importance attached to the money supply and to the Bank of Canada’s monetary policies has increased dramatically. This is because the most serious problem of this period has been severe inflation, associated with exceptionally rapid increases in the money supply. This has drawn critical attention to the Bank of Canada’s monetary policies, which its critics see as having caused severe inflation by allowing excessively rapid growth of the money supply. These critics are often called “monetarists,” and their theories “monetarism” – a term subject to varying interpretations. In its milder forms, it refers simply to an increased emphasis on controlling the growth of the money supply in order to restrain inflation. Its more extreme proponents insist that only excessive increases in the money supply cause inflation, that only curbs on money-supply growth can combat inflation, and that the government should never increase the money supply at rates above a specified limit.
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Friday, October 2nd, 2009
This concern is often expressed in the words that “any business that ran that way would go broke.” Sometimes the reference is to government inefficiencies and waste, which no one condones, but often the reference is to budget deficits and the rising National Debt. However, the matter is not that simple. Most successful businesses accumulate not only productive assets but also more and more liabilities, or debt, reflecting the money that was borrowed to finance those assets. Businesses do not regard such a situation as bad management; indeed, the acquisition of the assets can be financially beneficial to the company by increasing its profitability.
Just as growing economy requires more private productive assets, such as factories and equipment, it requires more social assets, such as roads, hospitals and schools. Both private and social assets are typically financed by borrowing, so that the debts of businesses and governments (as well as households) have risen. The simple fact that these debts have risen in no way proves mismanagement on the part of governments or businesses or household in general.
Another problem that contributes to misunderstandings concerning government deficits is that many people confuse a government budget deficit with business “loss.” Some types of government budgets lump together all spending – for “current” purposes such as payroll and “capital” purposes such as airports - so that, whenever social assets are bought or built, the government’s budget shows an excess of spending over the current year’s tax revenues, or a deficit. By contrast, a business’ income statement does not include “capital” expenditures, on items such as plant, as current expenses, and its balance sheet shows its assets as well as its liabilities (or debt). Government’s budgets generally show the liabilities without showing the corresponding assets.
Furthermore, no business has the responsibility to prevent recessions in the economy, and deficit spending - financed by borrowing – is a proven method of fulfilling that responsibility. Rising unemployment gives the government the choice of either ignoring the problem or using deficit spending to combat it. Considering that the government is responsible for maintaining “full employment” It could well be argued that good management sometimes requires the government to have budget deficits.
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Wednesday, September 23rd, 2009
One reason for government borrowing is to finance the purchases of “social assets,” such as roads, hospitals, schools, public buildings and airports. Since these assets are too expensive to be paid out of the current year’s tax revenues, the government borrows the money to pay for them – just as households borrow to buy cars and houses, and businesses go into debt to purchase capital equipment or build facilities that are too costly to pay for out of current income. In each of these examples, the benefits of the asset purchased will be received over a period of years in the future, so it is considered appropriate to borrow to buy them and repay the loan in the future.
Another reason for federal government borrowing is to finance budget deficits to combat recessions. Thus, the federal government’s responsibility for minimizing the effects of recessions sometimes requires it to go into debt. Historically, another major reason for government borrowing and increases in the National Debt has been the financing of wartime expenditures. For example, the Second World War added over $10,000,000,000 to Canada’s National Debt.
Each of the above is generally considered to be a legitimate reason for borrowing by the government. However, ordinary operating expenses of the government,such as its payroll, should be paid for by tax revenues. It is not considered to be good financial practice to borrow (or even worse, print) money to cover operating expenses, or to avoid a necessary increase in taxes for political reasons, any more than it is considered appropriate for households to go into debt to pay their telephone or food bills.
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Thursday, September 17th, 2009
We have seen that the use of government fiscal policy to stimulate the economy during recessions requires that the government borrow money (mostly through bond issues) in order to finance its budget deficits. The total amount of federal government debt thus incurred – the amount of money owed by the federal government – is called the “National Debt.” By 1983 the National Debt will amount t over $100 billion, or nearly $4000 for every man, woman, and child in Canada.
The National Debt has, over the years, been the subject of a great deal of misunderstandings, fears, myths and political hypocrisy. Many Canadians believe, for instance, that the National Debt is owed to other countries and that Canada may go bankrupt because of it. Both of these ideas are myths. On the other hand, few Canadians appreciate the real dangers concerning the National Debt. We will examine first the myths, then the real dangers.
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