Warm up What are the dates for the US Government’s fiscal year?
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Transcript of Warm up What are the dates for the US Government’s fiscal year?
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Warm up
What are the dates for the US Government’s fiscal year?
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Deficits, Surpluses, and the National Debt
Chapter 10 sec4
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From the Deficit to the Debt
• Throughout United States history, the federal government has practiced deficit spending, or spending more than the revenues it collected.
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Historically
• Historically, the largest federal deficits happened during World War II. The budget however, had a surplus by 1947, that lasted until the 1980s.
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• When the budget runs a deficit, the Treasury Department sells bonds to the public to raise money.
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• The federal debt is the total amount the government has borrowed from investors to finance its deficit spending over its long history.
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• The total federal debt has grown to over $14.2 trillion.
• Debt to the Penny (Daily History Search Application)
That’s a stack of $100 bills over 6,800 miles
high!
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Impact of the National Debt
• The federal debt causes a transfer of purchasing power from the private to the public sector.
• The larger the federal debt, the larger the interest payments, and the more taxes needed to pay.
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Taming the Deficit
Congress tried to mandate a balanced budget in 1991 through the Gramm-Rudman-Hollings Act.
Whip it, Good!
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“Crowding-Out Effect”
• In selling bonds to raise money, the federal government competes with the private sector for scarce resources, leading to higher-than-normal interest rates.
This is the “crowding-out effect”.
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The Balanced Budget Agreement of 1997
• Congress gave the president a line-item veto, but the Supreme Court found it unconstitutional.
• The Balanced Budget Agreement of 1997 followed, with rigid spending caps so Congress could balance the budget by 2002.
• In 1999 Congress increased defense spending and cut taxes; as a consequence, they had to cut popular programs such as health, education, and veterans’ programs.
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External Shocks
• Due to the 2001 recession, September 11th, the war on terrorism, and the continued growth of entitlements, the government is facing record budget deficits.