How can the Fed Gov spend more than it received every year, whereas as family would have a hard time doing the same thing year in and year out?The question is related to the Federal Gov were...

How can the Fed Gov spend more than it received every year, whereas as family would have a hard time doing the same thing year in and year out?

The question is related to the Federal Gov were required to balance it's budget?

 

Asked on by rod0369

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

There are a number of ways to answer this:

First of all, the average household is actually in debt to some extent.  The average household does not run a deficit each year, but it is in debt.  For example, lots of people (me included) have mortgages.  Such people are in debt just like the federal government is but we do not think they are insolvent.

Second, the federal government can do this because, so far, there are plenty of people willing to lend to them.  No one really worries about the ability of the federal government to pay back the money that they borrow.  Because of that, they can keep borrowing every year.

Third (related to the second), the debt and deficit have been relatively low compared to how much the country makes each year (our GDP).  That is a major reason why investors have not been afraid to lend money to the US government.

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