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Monday, July 18, 2011

Another US Federal Deficit Poll

I put together another quick poll and was interested in what the community thought on this issue. Also feel free to comment below with any additional thoughts, especially if you selected 'None of the Above'.

Here is the first Deficit Poll: Deficit Poll 1

Here is the second Deficit Poll: Deficit Poll 2

The poll items are getting cut off on the poll screen for the second poll, here is the full text below.

This statement describes my view on the US Federal Government Deficit:

-- Deficit Hawk: The deficit is an immediate major issue. It is out of control, and it's size is the cause of current and impending economic problems (crowding out private investment, forcing an impending funding crisis as foreigners refuse to fund the US government, is a threat to national security as we won't be able to afford military spending, etc.). It is a failure of government to get Federal spending under control, as the current size of the spending is completely unsupported by taxes (far outpaces tax revenues).

-- Deficit Dove: The deficit is a long term problem that won't have to be dealt with until the intermediate term. Currently we have a balance sheet recession and high unemployment. We need aggregate spending now since deflationary / depressionary forces are the most imminent economic problems. The intertemporal Government Budget Constraint is not critical at this point and we have some time before we need to run balanced budgets / surpluses in the future.

-- Deficits Don't Matter: The US National Debt is nothing more than the accumulated net financial assets (in terms of the US Dollar) of the private domestic sector and the foreign sector. The US Deficit is governed by the following identity: Net Government Spending (Spending - Taxation) = Net Private Sector Savings (Savings - Investment) - Net Foreign Sector Balance (Net Exports - Net Imports). That is, Federal Government Spending is not discretionary and is dependent on the private sector's net savings desires and the current government trade policy (as supported by the private sector). The US Federal Government can never face a 'solvency' issue as it is sovereign issuer of the US Dollar, and is the source of all Dollars in existence. A large deficit has no more 'solvency' or 'security' risk than a small deficit or a surplus, it simply reflects the accumulated net savings desires of the non-government sectors. If the private sector desires to net save while we have a current account deficit, it is the Federal Government's responsibility to ensure enough net Government spending exists to satisfy that demand.

-- None of the Above
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