I was looking at a chart that showed the growth of the debt over time, and it looks like it took a huge leap around 1983 and has been growing fast ever since. What happend in the early 80s to trigger this?
Thank you
Don’t know, but the second oil crisis and the depression it caused come to mind. Also the Reagan administration’s economical policies apparently increased the debt far more quickly than its predecessor’s.
Reagan cut taxes, Congress kept increasing spending.
http://www.heritage.org/research/features/budgetchartbook/images/charts_C/c1sml.gif
It appears that table is from the Heritage Foundation; can someone post more reliable figures?
The Heritage numbers are accurate. (Just because they have an agenda doesn’t mean they lie about simple facts.) But the chart only show budget deficits, not the national debt.
Here are figures on the debt.
Oh, and LemonThrower is on the money.
Presidents don’t cut taxes. They bully Congress into doing it. Reagan not only got Congress to drastically cut taxes for the wealthy, he got them to approve huge increases in the defense budget.
forgive me for asking a dumb question but where does the money come from?
I read somewhere that the US Federal Government overspends by about $2 billion a day, well wayes need to be paid etc so where do they get the money from???
Banks??? Other countries???
(
don’t laugh at me :()
wages not wayes
The U.S. (and other countries, too) sell bonds. The bonds can range from very short-term up to (I think) 30 years. The government pays interest on the bonds during that time, and then pays in full when the bond matures. It’s the same principle as those “loan 'til payday” shops you see in low-income neighborhoods, but the interest rates are lower.
How does a country get the money to pay interest on a bond even though it’s already in debt? By selling another bond. Why do investors (which include other countries, banks and folks who buy savings bonds) line up to buy the bonds? Because they are backed by the “full faith and credit” of the United States, and that if the day ever comes when the U.S. won’t pay its debt, pretty much any kind of money from any country won’t be worth much.
Not entirely accurate. Reagan did drastically increase the defense budget, but a good deal of the money came from the retrenchment of the welfare state. Reagan made defense a much bigger piece of the pie, but in absolute terms total government spending didn’t increase all that much.
He did also manage (though not through any true economic genius on his part) to turn around an economy which was collapsing under the weight of subsidised heavy industry, rampant protectionism, and overregulation, and turned it into the one we know today.
Seriously, don’t worry about the national debt. As long as Americans believe their bonds will be paid on maturing, they’ll keep buying them. The debt isn’t accruing to foreign investors, so we’re not going to have an exchange shortage anytime soon; it just wastes a lot of paper (they have to print the bonds on something)
to elaborate, Reagan inherited a depleted military and an economy suffering from stagflation from Carter. His solution was to cut taxes to stimulate the economy, which worked. However, Congress was unwilling to cut spending. While military spending increased dramatically, overall government spending increased at a pace relatively consistent with other years over the last 30 years. So you are right to tie the root of the problem to the early Reagan years, but its difficult to make a case that Reagan or the Democrat Congress should bear more blame than the other. I guess you could say Reagan could be excused because he was trying to get us out of a recession and the Democrats were just continuing business as usual, but that is splitting hairs. Both knew what the other was doing and allowed it to happen, so both deserve blame.
There are 2 main explanations for why our national debt has grown so large, depending on your politics. 1. Taxes are insufficient to cover current spending, which implies we should raise taxes and/or lower spending, and 2. government spending as a percentage of the national economy has grown too large. This implies we should lower goverment spending and/or lower taxes. Government spending, even as a percentage of GDP, has continued to grow each year. The rate of growth is modest but we have gone from 10% to over 20% in a rather short time! In absolute terms, this probably has more to do with “causing” the inability of a Congress and a President in any year to balance a budget.
The gov’t. borrows it in the market by selling bonds. They’re purchased by individuals, businesses, and, as far as I know, other governments (including domestic local ones).
Basically, U.S. gov’t. bonds are about as close to riskless, in terms of the investment tanking, as you’ll get, so they make an important element of investment portfolios–depending on wealth, age, taste for risk, yadda, yadda.
Another way of covering the deficit is the Social Security surplus.
The government takes in more in Social Security payments today than it sends out. This money is “invested” into the general government fund. In a sense the government is buying bonds from itself, though I don’t think it is paying interest on that.
This may sound very wacky, but Cecil in an article made the good point to the effect of “Where exactly can the government safely invest $100 billion every year?” They can’t just put it in a bank or bury it in a box. Buying stock has some risks, and would be very hard to do without accusations of unfairness.
As for how to plan for the day when Social Security stops taking in more than it pays out… go to Great Debates.
It has been reported many times in the years since that - in total, over the full eight years of Reagan’s administration - the amount Reagan asked for in his budget proposals and the amount that Congress actually put into their budget bills differed by only a few billion dollars.