Economic Effects of a Budget Deficit Exceeding $1 Trillion [March 12, 2010]   [open pdf - 193KB]

"The federal budget deficit for FY2009 totaled $1.4 trillion, the first time it has ever topped $1 trillion. The government's ability to finance a budget deficit depends on the size of the economy. For this reason, and to compare the deficit to historical or foreign deficits, it is more meaningful to measure the deficit relative to gross domestic product (GDP). By this measure, the 2009 deficit is unusual but not unprecedented. The Congressional Budget Office (CBO) recorded an actual 2009 deficit equaling 9.9% of GDP. Seven times in U.S. history the federal budget deficit has exceeded 10% of GDP, which were during or following the Civil War (1865), World War I (1918, 1919), and World War II (1942-1945). Federal budget deficits cause the publicly held federal debt to increase. The FY2009 deficit of 9.9% of GDP, in a year when GDP fell, caused the debt-to-GDP ratio to rise by 12.8 percentage points. Some Members of Congress have questioned whether a deficit of this magnitude is manageable and what effects it will have on the economy. This report will evaluate those questions."

Report Number:
CRS Report for Congress, R40770
Public Domain
Retrieved From:
U.S. Department of State, Foreign Press Centers: http://fpc.state.gov/
Media Type:
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