Comments on: The almighty bond market: Niall Ferguson’s concerns about the US deficit explained http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/ for students and teachers of Economics Wed, 23 May 2012 04:39:58 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Monique T http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-24113 Monique T Wed, 23 May 2012 04:39:58 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-24113 Hi Bjorn, Great explanations, you made everything very clear :) I enjoyed reading some of the reasons that investors could lose faith in the government bonds, since most people focused on why they wouldn't. I'd agree that something huge like bankruptcy would make investors lose faith, for sure. It makes me think about this past year, when the US government had its credit rating downgraded due to the large deficit it had acquired and can barely pay back - this caused a lot of fear and loss of faith in the investment world, of course! Thanks for the ideas! Hi Bjorn,
Great explanations, you made everything very clear :) I enjoyed reading some of the reasons that investors could lose faith in the government bonds, since most people focused on why they wouldn't. I'd agree that something huge like bankruptcy would make investors lose faith, for sure. It makes me think about this past year, when the US government had its credit rating downgraded due to the large deficit it had acquired and can barely pay back – this caused a lot of fear and loss of faith in the investment world, of course! Thanks for the ideas!

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]]> By: Monique T http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-24112 Monique T Wed, 23 May 2012 04:35:09 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-24112 1.Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion. The US has experienced economic crises that have led to higher unemployment, slow economic growth, and other problems such as failing banks. This means that, more than ever, the government had to implement stimulus plans to try to save to economy; and in doing so, they spent more money on government expenditure than they normally would, leading to such a huge budget deficit. 2.How does the issuance of new bonds by the US government lead to less money being available to private households and firms? When new bonds are issued, their price falls, making them more attractive to private households and firms. With more money being invested into these bonds, less money is available for consumption or investment. 3.Do you think investors will ever totally lose faith in US government bonds? Why or why not? I don’t think that investors will ever totally lose in faith in US government bonds. Firstly, bonds are considered one of the least risky forms of investment. As well, the government has the capability to emerge from most problems that face it, while a firm that investors may invest into does not have the same stability. Even with a crisis, the US government must push to ensure it does not fail economically, and so it will make every attempt to stay on its feet; on the other hand, firms have the ability to shut down or declare bankruptcy, making them riskier investments. 4.In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit? The huge budget deficit is going to have to be paid back somehow. In the end, the next generation of citizens – today’s teenagers – may have to suffer in order to get the government back on track. Once the deficit gets too high, the next generation will have to begin paying more taxes to make up for it, and so this deficit can affect the teenagers of today in the long run. 1.Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion.
The US has experienced economic crises that have led to higher unemployment, slow economic growth, and other problems such as failing banks. This means that, more than ever, the government had to implement stimulus plans to try to save to economy; and in doing so, they spent more money on government expenditure than they normally would, leading to such a huge budget deficit.

2.How does the issuance of new bonds by the US government lead to less money being available to private households and firms?
When new bonds are issued, their price falls, making them more attractive to private households and firms. With more money being invested into these bonds, less money is available for consumption or investment.

3.Do you think investors will ever totally lose faith in US government bonds? Why or why not?
I don’t think that investors will ever totally lose in faith in US government bonds. Firstly, bonds are considered one of the least risky forms of investment. As well, the government has the capability to emerge from most problems that face it, while a firm that investors may invest into does not have the same stability. Even with a crisis, the US government must push to ensure it does not fail economically, and so it will make every attempt to stay on its feet; on the other hand, firms have the ability to shut down or declare bankruptcy, making them riskier investments.

4.In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit?
The huge budget deficit is going to have to be paid back somehow. In the end, the next generation of citizens – today’s teenagers – may have to suffer in order to get the government back on track. Once the deficit gets too high, the next generation will have to begin paying more taxes to make up for it, and so this deficit can affect the teenagers of today in the long run.

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]]> By: dnyanzi http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-24079 dnyanzi Tue, 22 May 2012 17:19:46 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-24079 @Mirren Mecathum I generally agree with your answers, I would just want to add that the effect on teenagers in the future may not only be an increase in taxes but also a decrease in government expenditure to get rid of the debt. @Mirren Mecathum
I generally agree with your answers, I would just want to add that the effect on teenagers in the future may not only be an increase in taxes but also a decrease in government expenditure to get rid of the debt.

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]]> By: dnyanzi http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-24077 dnyanzi Tue, 22 May 2012 17:09:54 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-24077 1)Why do you think the US government has such a huge budget deficit this year? ($1.9 trillion) Previously, the largest budget deficit on record was only around $400 billion. The US government has had a huge deficit of $1.9 trillion due to the recession in 2009, in which many people became unemployed and where production took a downturn. To finance the general expenditure of schooling, infrastructure, unemployment benefits etc plus the added stimulus package which should increase aggregate demand and real GDP; the government’s expenditure has exceeded its revenue greatly causing a colossal budget deficit. 2)How does the issuance of new bonds by the US government lead to less money being available to private households and firms? With an increase in supply of bonds their purchase price decreases, this makes it cheaper for private households and firms to invest in government bonds. Furthermore with a lower price the interest rate paid to the lender increases as the face value of the government bond is fixed, making it more attractive to the public. Because the money is now being diverted into saving -which is a leakage of the circular flow model- firms and households now have less money to spend. 3)Do you think investors will ever totally lose faith in US government bonds? Why or why not? I do not think that investors will totally lose faith in US government bonds, because even if the government does not pay back the interest directly, the economy is surely going to experience a boom in its business cycle in which the government may be able to pay back its debt. Investors may however lose faith slightly as the government may not be reliable in paying back the interest. 4)In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit? Teenagers may suffer due to the budget deficit as the government may need to make serious budget cuts and this could result in less invest in public universities, lower incomes for workers in the public sector etc. Furthermore the government may increase taxes such as direct taxes to reduce their debt and this will decrease the disposable income of workers and reduce their standard of living. 1)Why do you think the US government has such a huge budget deficit this year? ($1.9 trillion) Previously, the largest budget deficit on record was only around $400 billion.
The US government has had a huge deficit of $1.9 trillion due to the recession in 2009, in which many people became unemployed and where production took a downturn. To finance the general expenditure of schooling, infrastructure, unemployment benefits etc plus the added stimulus package which should increase aggregate demand and real GDP; the government’s expenditure has exceeded its revenue greatly causing a colossal budget deficit.

2)How does the issuance of new bonds by the US government lead to less money being available to private households and firms?
With an increase in supply of bonds their purchase price decreases, this makes it cheaper for private households and firms to invest in government bonds. Furthermore with a lower price the interest rate paid to the lender increases as the face value of the government bond is fixed, making it more attractive to the public. Because the money is now being diverted into saving -which is a leakage of the circular flow model- firms and households now have less money to spend.

3)Do you think investors will ever totally lose faith in US government bonds? Why or why not?
I do not think that investors will totally lose faith in US government bonds, because even if the government does not pay back the interest directly, the economy is surely going to experience a boom in its business cycle in which the government may be able to pay back its debt. Investors may however lose faith slightly as the government may not be reliable in paying back the interest.

4)In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit?

Teenagers may suffer due to the budget deficit as the government may need to make serious budget cuts and this could result in less invest in public universities, lower incomes for workers in the public sector etc. Furthermore the government may increase taxes such as direct taxes to reduce their debt and this will decrease the disposable income of workers and reduce their standard of living.

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]]> By: Mirren Mecathum http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23773 Mirren Mecathum Wed, 16 May 2012 05:31:11 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23773 Hi lgade2, I totally agree with your responses especially when you mentioned the economic crisis and how you linked it to the issue at hand. I also stated that the government had to increase its spending but it was good how you complimented that statement with the fact that the tax revenue actually did not decrease. It was a very concrete point. Hi lgade2,

I totally agree with your responses especially when you mentioned the economic crisis and how you linked it to the issue at hand. I also stated that the government had to increase its spending but it was good how you complimented that statement with the fact that the tax revenue actually did not decrease. It was a very concrete point.

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]]> By: Mirren Mecathum http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23772 Mirren Mecathum Wed, 16 May 2012 05:27:02 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23772 Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion. A budget deficit is usually used in government spending and it is when there is more money being used than coming in. Therefore the amount of expenditure incurred by the government would be higher than amount received from tax revenues. According to the article, the government had overspent through implementing stimulus packages. In order to carry out such implementations, a big sum has to be invested into it. How does the issuance of new bonds by the US government lead to less money being available to private households and firms? Market interest rates are closely related when talking about bonds. It is one of the aspects that need to be taken into account especially when a new bond is looking to be issued. Not only that, the rate of inflation in an economy needs to be analyzed as well to predict future fluctuations in price and how it affects the bond. Lastly, on a smaller note, the tax level is a determinant to consider as well. According to the article, the amount of money circulating in the economy would decrease to a less active level, as the typical household would react in a rational manner in this case saving the money. Do you think investors will ever totally lose faith in US government bonds? Why or why not? This is dependent on how the US government has been handling the bonds they have made in the past. If the US government has held up to all conditions of previous bonds, consumers would have no issue trusting the government to keep to their part of the “deal”. Faith will only be lost once the consumers find out that the government has been dishonest on their part causing economic corruption. In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit? As teenagers are the “up and coming” generation of the economy, the consequences of what the deficit that is felt by the parents now will be passed on to them. This will start with the average price levels rising and if the teenager is lucky to even be employed, the next thing to worry about is the amount of tax incurred. Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion.

A budget deficit is usually used in government spending and it is when there is more money being used than coming in. Therefore the amount of expenditure incurred by the government would be higher than amount received from tax revenues. According to the article, the government had overspent through implementing stimulus packages. In order to carry out such implementations, a big sum has to be invested into it.

How does the issuance of new bonds by the US government lead to less money being available to private households and firms?

Market interest rates are closely related when talking about bonds. It is one of the aspects that need to be taken into account especially when a new bond is looking to be issued. Not only that, the rate of inflation in an economy needs to be analyzed as well to predict future fluctuations in price and how it affects the bond. Lastly, on a smaller note, the tax level is a determinant to consider as well. According to the article, the amount of money circulating in the economy would decrease to a less active level, as the typical household would react in a rational manner in this case saving the money.

Do you think investors will ever totally lose faith in US government bonds? Why or why not?

This is dependent on how the US government has been handling the bonds they have made in the past. If the US government has held up to all conditions of previous bonds, consumers would have no issue trusting the government to keep to their part of the “deal”. Faith will only be lost once the consumers find out that the government has been dishonest on their part causing economic corruption.

In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit?

As teenagers are the “up and coming” generation of the economy, the consequences of what the deficit that is felt by the parents now will be passed on to them. This will start with the average price levels rising and if the teenager is lucky to even be employed, the next thing to worry about is the amount of tax incurred.

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]]> By: lgade2 http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23752 lgade2 Tue, 15 May 2012 08:35:52 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23752 Hey lzhang2, I completely agree with your point about the economic crisis of 2009 being the primary cause for the government's huge budget deficit. However, I thought it was interesting how you mentioned that its great impact was due to its "unexpectedness"; but I think you're right. If the government had been anticipating an economic crisis of that scale, it could have prepared for having to increase spending on unemployment benefits, etc. Hey lzhang2,
I completely agree with your point about the economic crisis of 2009 being the primary cause for the government's huge budget deficit. However, I thought it was interesting how you mentioned that its great impact was due to its "unexpectedness"; but I think you're right. If the government had been anticipating an economic crisis of that scale, it could have prepared for having to increase spending on unemployment benefits, etc.

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]]> By: lgade2 http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23751 lgade2 Tue, 15 May 2012 08:30:24 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23751 The reason for huge budget deficit in 2009 was, above all, the economic crisis. The crisis resulted in a great increase in unemployment; which increased the government's spending for unemployment benefits. Additionally, the banks had many people incapable of paying back loans; due to unemployment. This costed the government money in the case that it had to "bail-out" said firms. Finally, the great decrease in income due to the unemployment also cost the government revenue in the form of income tax. Therefore, the US government experienced a huge deficit in 2009 not only because it received less tax revenue, but also because it had to increase its spending. The issuance of new bonds by the US government leads to less money being available to private households and firms. This is because as the US government issues a greater quantity of bonds, their value decreases. More people will therefore purchase the bonds, which will take money out of circulation; and indirectly from private households and firms. In my opinion, investors will never "totally lose faith" in government bonds. This is because the US government is stable, and even in a state of crisis it is likely that the US economy will eventually emerge and return to being successful. Therefore, although investors may lose some faith in the bonds, they will never "totally lose faith" in them. The huge budget deficit of the US government could result being a "tax on teenagers". The vastness of the deficit means that taxes will be likely to increase in the next years to increase the government tax revenue and therefore pay back the debts. Therefore, the youth of today will end up paying much greater taxes than generations before them; making it a "tax on teenagers". The reason for huge budget deficit in 2009 was, above all, the economic crisis. The crisis resulted in a great increase in unemployment; which increased the government's spending for unemployment benefits. Additionally, the banks had many people incapable of paying back loans; due to unemployment. This costed the government money in the case that it had to "bail-out" said firms. Finally, the great decrease in income due to the unemployment also cost the government revenue in the form of income tax. Therefore, the US government experienced a huge deficit in 2009 not only because it received less tax revenue, but also because it had to increase its spending.

The issuance of new bonds by the US government leads to less money being available to private households and firms. This is because as the US government issues a greater quantity of bonds, their value decreases. More people will therefore purchase the bonds, which will take money out of circulation; and indirectly from private households and firms.

In my opinion, investors will never "totally lose faith" in government bonds. This is because the US government is stable, and even in a state of crisis it is likely that the US economy will eventually emerge and return to being successful. Therefore, although investors may lose some faith in the bonds, they will never "totally lose faith" in them.

The huge budget deficit of the US government could result being a "tax on teenagers". The vastness of the deficit means that taxes will be likely to increase in the next years to increase the government tax revenue and therefore pay back the debts. Therefore, the youth of today will end up paying much greater taxes than generations before them; making it a "tax on teenagers".

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]]> By: kedwards http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23686 kedwards Sun, 13 May 2012 22:24:52 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23686 @lzhang2 I think it's very important how you referenced the unexpected-ness of the economic crisis in the U.S. That element of surprise definitely hindered a lot of progress, because policymakers and government officials had to take time and regroup, which naturally would progress to a budget deficit. @lzhang2
I think it's very important how you referenced the unexpected-ness of the economic crisis in the U.S. That element of surprise definitely hindered a lot of progress, because policymakers and government officials had to take time and regroup, which naturally would progress to a budget deficit.

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]]> By: kedwards http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23685 kedwards Sun, 13 May 2012 22:20:32 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23685 Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion. When the government is running a budget deficit, it means that total government expenditure exceeds the tax revenue. The budget deficit here is due to the huge increase in government spending and borrowing for the year. This spending occurred through stimulus packages, and it takes a lot of government money to enact policy or funding. How does the issuance of new bonds by the US government lead to less money being available to private households and firms? Bonds are fixed-income financial assets, which basically promise the holder a specified set of payments. The value of a government bond is relative to the market interest rates, inflation level, trust of the payment, and the tax level. Because the new bonds are created in this situation without an increase in the money supply, the most common form of bonds (savings) will have households and firms conserving money, and the government absorbing more. Other bonds that are not transferrable to cash will also conserve money. Therefore, there is a decreased money circulation in the economy. Do you think investors will ever totally lose faith in US government bonds? Why or why not? As long as the government does not start neglecting all previous bonds, and dis-valuing the trust of consumers/investors, I doubt that there will be a random loss of faith in the U.S. Government. This will most likely only occur if there is a scandal of spending or other budget crisis occurring, there will not be an unprovoked lack of faith. In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit? The teenagers of today are the next generation of the workforce. Once it’s time to pay taxes, the deficit that must be paid of will appear in our responsibilities. Not only will future taxes be an issue, but current price levels and unemployment is an issue to teenagers as a result of a smaller money supply. It’s already difficult to find a job as a teenager, and increased unemployment will not work to their benefit, truly “taxing the teenagers.” Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion.

When the government is running a budget deficit, it means that total government expenditure exceeds the tax revenue. The budget deficit here is due to the huge increase in government spending and borrowing for the year. This spending occurred through stimulus packages, and it takes a lot of government money to enact policy or funding.

How does the issuance of new bonds by the US government lead to less money being available to private households and firms?

Bonds are fixed-income financial assets, which basically promise the holder a specified set of payments. The value of a government bond is relative to the market interest rates, inflation level, trust of the payment, and the tax level.
Because the new bonds are created in this situation without an increase in the money supply, the most common form of bonds (savings) will have households and firms conserving money, and the government absorbing more. Other bonds that are not transferrable to cash will also conserve money. Therefore, there is a decreased money circulation in the economy.

Do you think investors will ever totally lose faith in US government bonds? Why or why not?

As long as the government does not start neglecting all previous bonds, and dis-valuing the trust of consumers/investors, I doubt that there will be a random loss of faith in the U.S. Government. This will most likely only occur if there is a scandal of spending or other budget crisis occurring, there will not be an unprovoked lack of faith.

In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit?

The teenagers of today are the next generation of the workforce. Once it’s time to pay taxes, the deficit that must be paid of will appear in our responsibilities. Not only will future taxes be an issue, but current price levels and unemployment is an issue to teenagers as a result of a smaller money supply. It’s already difficult to find a job as a teenager, and increased unemployment will not work to their benefit, truly “taxing the teenagers.”

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]]> By: lzhang2 http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23434 lzhang2 Tue, 08 May 2012 02:45:41 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23434 It's impressive that you have related to the monetary policies to government's deficit! Of course, government while facing economic downturn will try to expand the economy by increasing its spending, and hence the money going out will be higher than expected. It's impressive that you have related to the monetary policies to government's deficit! Of course, government while facing economic downturn will try to expand the economy by increasing its spending, and hence the money going out will be higher than expected.

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]]> By: lzhang2 http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23433 lzhang2 Tue, 08 May 2012 02:43:47 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23433 Why do you think the US government has such a huge budget deficit this year? ($1.9 trillion) Previously, the largest budget deficit on record was only around $400 billion. 2009 is a year of financial crisis. A lot of people lost their jobs and a lot of institutions closed down when the market collapsed. A lot of bad debts incurred while people could not afford to pay back. The government did not expect that and needed to pay a lot of unemployment benefits to people while they became unemployed. Also, while companies went bankrupt, the output level dropped and some amount of corporation taxes were lost. Income taxes were lost too because people were jobless. How does the issuance of new bonds by the US government lead to less money being available to private households and firms? The issuance of new bonds increases the interest rates of the government bonds. The private households and firms will invest more in the government bonds rather than other private investments. They now have less disposable incomes while they put their money on investment of the government bonds. Do you think investors will ever totally lose faith in US government bonds? Why or why not? I think the situation is very unlikely. First of all, purchasing government bonds is considered the most risk-less investment as the probability of a government's collapse is very little. Even though the time for paying back might be long, the US government will one day pay back the debt. I don't think investors will totally lose faith in US government bonds. In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit? In order for the government to ever pay back its debts, it must borrow money from its people. Tax revenues are a way of generating funds. However, the government would not start to pay off its debts until the economy starts to recover. And when will the economy recover? The teenagers now will have to pay higher taxes to make the government's funding for debts paying off. Why do you think the US government has such a huge budget deficit this year? ($1.9 trillion) Previously, the largest budget deficit on record was only around $400 billion.
2009 is a year of financial crisis. A lot of people lost their jobs and a lot of institutions closed down when the market collapsed. A lot of bad debts incurred while people could not afford to pay back. The government did not expect that and needed to pay a lot of unemployment benefits to people while they became unemployed. Also, while companies went bankrupt, the output level dropped and some amount of corporation taxes were lost. Income taxes were lost too because people were jobless.
How does the issuance of new bonds by the US government lead to less money being available to private households and firms?
The issuance of new bonds increases the interest rates of the government bonds. The private households and firms will invest more in the government bonds rather than other private investments. They now have less disposable incomes while they put their money on investment of the government bonds.
Do you think investors will ever totally lose faith in US government bonds? Why or why not?
I think the situation is very unlikely. First of all, purchasing government bonds is considered the most risk-less investment as the probability of a government's collapse is very little. Even though the time for paying back might be long, the US government will one day pay back the debt. I don't think investors will totally lose faith in US government bonds.
In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit?
In order for the government to ever pay back its debts, it must borrow money from its people. Tax revenues are a way of generating funds. However, the government would not start to pay off its debts until the economy starts to recover. And when will the economy recover? The teenagers now will have to pay higher taxes to make the government's funding for debts paying off.

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]]> By: sophie zhou http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23392 sophie zhou Fri, 04 May 2012 16:34:06 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23392 1. Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion. This year, the US government has the extremely large budget deficit of $1.9 trillion for a few reasons, but mostly due to an increase in spending. Government have increased government expenditure to maintain the high aggregate demand since Consumer expenditure and Investment expenditure have decreased. By doing this, they hope to implement the Multiplier Effect through the $800 billion fiscal policy. Furthermore, the government is spending money as well as cutting a great deal of taxes, by increasing their outgoing an decreasing their incomes , the two will naturally grow, in the case of 1.9 trillion. 2. How does the issuance of new bonds by the US government lead to less money being available to private households and firms? To control the amount of money and interest rates that are seen in a country, the Central Bank of a country uses government bonds. Government Bonds allows the government to use the money utilized to buy the bonds and invest in different areas and the investors get the dividends of the profit. When US government increases the number of bonds available, making the bonds cheaper and more appealing to people, causing more people to buy them. When more people buy the Bond, then there is less money in circulation. Therefore, there is less money for households and firms. 3. Do you think investors will ever totally lose faith in US government bonds? Why or why not? Since the US government is fairly stable, the liklihood for firms to lose total faith in government bonds is unlikely. The bonds will not be rendered worthless since there is a very slight chance that the government will ever collapse or become bankrupt. However, there might be a fear that a massive drop in the value of government bonds would occur if Obama does not balance the budget properly since would be fairly easy to push investors of US government bonds into fearing the US bonds and buy into more stable government bonds. 4. In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit? The current Government deficit is likely to become larger due to its massive scale. By accumulating a large amount of debt, the US Government will have to repay it at some point. Until the economy start to recover and indicate some signs of adequate health, the US Government cannot start repaying the amounts they might like to. This could mean generations of paying off debt. 1. Why do you think the US government has such a huge budget deficit this year? Previously, the largest budget deficit on record was only around $400 billion.
This year, the US government has the extremely large budget deficit of $1.9 trillion for a few reasons, but mostly due to an increase in spending. Government have increased government expenditure to maintain the high aggregate demand since Consumer expenditure and Investment expenditure have decreased. By doing this, they hope to implement the Multiplier Effect through the $800 billion fiscal policy. Furthermore, the government is spending money as well as cutting a great deal of taxes, by increasing their outgoing an decreasing their incomes , the two will naturally grow, in the case of 1.9 trillion.

2. How does the issuance of new bonds by the US government lead to less money being available to private households and firms?
To control the amount of money and interest rates that are seen in a country, the Central Bank of a country uses government bonds. Government Bonds allows the government to use the money utilized to buy the bonds and invest in different areas and the investors get the dividends of the profit. When US government increases the number of bonds available, making the bonds cheaper and more appealing to people, causing more people to buy them. When more people buy the Bond, then there is less money in circulation. Therefore, there is less money for households and firms.

3. Do you think investors will ever totally lose faith in US government bonds? Why or why not?
Since the US government is fairly stable, the liklihood for firms to lose total faith in government bonds is unlikely. The bonds will not be rendered worthless since there is a very slight chance that the government will ever collapse or become bankrupt. However, there might be a fear that a massive drop in the value of government bonds would occur if Obama does not balance the budget properly since would be fairly easy to push investors of US government bonds into fearing the US bonds and buy into more stable government bonds.

4. In what way is the government’s huge budget deficit a “tax on teenagers”? In other words, how will today’s teenagers end up suffering because of the federal budget deficit?

The current Government deficit is likely to become larger due to its massive scale. By accumulating a large amount of debt, the US Government will have to repay it at some point. Until the economy start to recover and indicate some signs of adequate health, the US Government cannot start repaying the amounts they might like to. This could mean generations of paying off debt.

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]]> By: sophie zhou http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-23390 sophie zhou Fri, 04 May 2012 03:01:50 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-23390 The term 'tax on teenagers' is completely correct. The reason is because they will be the ones suffering for their parents' frivolous and careless spending. The term 'tax on teenagers' is completely correct. The reason is because they will be the ones suffering for their parents' frivolous and careless spending.

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]]> By: Mike Fladlien http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-15433 Mike Fladlien Mon, 01 Aug 2011 12:35:27 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-15433 Hi, Great post as always. I was wondering about the link to the Ascent of Money. It does not show up on my browser, and I was wondering if you'd post it or send me the link. Best, Hi, Great post as always. I was wondering about the link to the Ascent of Money. It does not show up on my browser, and I was wondering if you'd post it or send me the link. Best,

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