Federal Government Debt: Its Size and Economic Significance [Updated September 9, 2004]   [open pdf - 737KB]

From the Document: "After being in surplus between FY1998 and FY2001, the federal budget has now registered deficits for the last three fiscal years. The budget, given current policies, is now projected to remain in deficit through FY2014. When the budget was in surplus, the policy issues were whether or not it would be worthwhile to pay off the national debt and whether or not the existence of public debt provided some economic benefits. For the time being, those are no longer issues. Instead, the question is what are the risks associated with a rising federal debt. In the short run, growth in the public debt affects the composition of economic output. Federal government borrowing adds to total credit demand and tends to push up interest rates. Higher interest rates increase the cost of financing new investment in plant and equipment and thus may tend to reduce the stock of productive capital below what it might otherwise have been. Should the federal government be unable to find private sector buyers, the Federal Reserve might buy the securities that otherwise the government would be unable to sell. Should it decide to do so, then the threat is no longer one of government insolvency, but rather of inflation. This report will be updated as warranted."

Report Number:
CRS Report for Congress, RL31590
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