Debt and deficit

The USA has the world's largest debt- in the region of 22 Trillion before the pandemic of 2020.

America also has a large trade deficit- it imports more than it exports

And fiscal deficit- tax revenues are lower than income

All three of these things have become politic issues - they divide parties and fuel debates in elections. But they also divide economists. This is because economists differ over exactly how bad debt and deficit is. It is generally accepted that a surplus economy with no debt would be better, at least for an individual nation- globally this would not be good, but exactly how much better is a matter of debate.

At the moment the U.S. government borrows trillions of dollars a year at very low interest rates on global financial markets, and this is not yet restricting the ability of private citizens or businesses to borrow money. Indeed, the fact that global interest rates remain very low while governments around the world are borrowing heavily to fight the COVID-19 recession suggests that there is still a lot of savings around the world, more than is needed to finance private investment. So for the moment- ie 10 years or so debt is not a big problem- but it could be.

No one really knows at what level a government’s debt begins to hurt an economy; there’s a heated debate among economists on that question. If interest rates remain low, as currently anticipated, the government can handle a much heavier debt load than was once thought possible.

This odes not mean debt is not a powerful political issue- it sounds and potentially is, very scary. Therefore it forms the basis of much political argument.