Advantages And Disadvantages Of Deficit Spending

Deficit Spending

Deficit Spending
American Military University
Deficit Spending
Deficit spending is defined as the “amount by which a government, company, or individual’s spending exceeds its income over a particular period of time” (InvestorWords, 2014). This is the practice of borrowing money to increase spending. The increase in spending is meant to add a flow of money into the economy to stimulate growth. By borrowing money, governments feel that the positive returns outweigh the negative returns and seek to reverse the effects of a recession.
Advantages to deficit spending are the long term effects of the money spent appropriately. Individuals with the same access to borrowing large sums of money would be faced with spending
As a government or individual borrows money there are interest rates associated with paying off the debt. When an entity borrows more money than it can realistically sustain, the debt ball increases at exponential rates. Side effects of deficit spending can be seen with higher taxes, interest rates increase, and the consumer cannot sustain their perceived lifestyle. Although there is a lower unemployment rate and more people spending, the cost of goods is greater than the consumer(s) can offset. This begins to affect another group of consumers not affected by the initial need of deficit spending. What occurs is a greater chance for individuals to fall into despair and cause a greater depression than
America is currently suffering a financial crisis. Trillions of dollars in debt caused by the stock market crash of 2008, ongoing wars abroad, and continued borrowing keeps America spiraling downward. During the attempt to recover the economy to prosperity, America has experienced the advantages and disadvantages of deficit spending, and watched as numerous private investors have been crowded out. The advantages were experienced when the government borrowed its first large amount of money to fix the crash. Although unemployment was climbing, the money borrowed stabilized any further downturn. The government didn’t allow interest rates to rise and investors began working to build the country. As investors noticed the opportunity to profit, they began creating goods and services consumed by individual buyers. This growth continued and unemployment began to fall slowly. Today unemployment is just under 7% compared to 10% in 2009 (United States Department of Labor, 2014). The flip side is the amount of small business owners that have been crowded out during the time period between 2008 til the present. The government became the principal investor in all things American and created programs which made it difficult for small businesses to maintain profitability. The government, in its effort to create capital to repay the debt, created numerous programs driving private investors from the