How does reducing deficit spending benefit a country in a recession?
- 1 decade agoFavorite Answer
Deficit spending is the spending money that the government doesn't have and doesn't even plan to have that year. So they borrow money to spend. They have to pay interest on that money. During a recession the governments revenues drop because people aren't paying as much in taxes. So the government borrows more money. The more money one borrows the more risk is involved in lending that one money. So, that one must pay a higher interest rate. So more money comes out of the wealth creating sector to pay more and more interest. Deficit spending keeps a country in a recession longer. Nothing is free. Everything must be paid for sooner or later. It is cheaper to pay for it sooner. It is cheaper because of less interest, people are forced to get rid of wasteful things earlier.
The government's unwise deficit spending uses money it forcefully takes from its citizens and spends it on things of no face value. Things like running beaurocracies and agencys that create no wealth and in fact destroy wealth. Like paying people to run agencys that hand out govt. borrowed money to undeserving corporations and people encouraging them to be immoral and irresponsible. This destroys wealth. Govt. should cut back on spending instead of borrowing more money. This would bring us out of the recession quicker.
Money taken out of the private sector discourages growth and inhibits wealth creation. Wealth creation is doing something that is worth something. Building a porch on a house makes the house more valuable. The builder has money to spend. Money he created. The owner of the house can even borrow more money against the house. On the govt. side now. Processing papers all day to see who gets more govt. hand outs doesn't make anything more valuable. Yes money changes hands with the money from the govt. to the recipient and then to what ever the recipient buys. But what wealth was created by the govt. organization and the recipient. They got money used resources but contributed nothing. Only the seller of what ever the recipient bought contributed.
Wealth creation is what brings countries out of recessions. Not more wasteful spending.
Recessions are a good and natural thing. They correct overpricing and get rid of waste. Any time in history a recession or a depression has been prolonged it is because of too much govt. involvement.
The depression of 1921 was much worse than the great depression of 1929. No one remembers the 1921 depression because it corrected itself quickly and the country was back in the money. But the depression of 1929 is remembered and is called the Great Depression because it lasted for 13 years. The govt. didn't allow the markets to correct them selves. The govt. ran deficits by borrowing money, raised taxes and spending money on new wasteful programs. All this made things worse for everyone.
- Warren TLv 71 decade ago
Going into deficit spending does help during a recession but our government does it all the time which is why we will see hyperinflation in the next 5-10 years
- Who's Yo DaddyLv 61 decade ago
The vary notion that spending more than you make is contrary enough. However, the government via deficit spending is sucking dry money than needs to be available to the private sector to increase business activity, which in most cases spurs hiring of workers. Government can not create wealth, only take it.
- 1 decade ago
If you reduce deficit spending, it means you should be able to spend more on growth, ie creating jobs, therefore pulling out of recession.
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- sabrawLv 44 years ago
you fairly don't be attentive to anyting with reference to the commerce deficit. for the period of Clinton's term, the commerce deficit actual grew. right it fairly is my source, under... for the period of Clinton's term, the U. S. financial gadget grew to become into growing to be speedier than those of our figuring out to purchase and advertising companions. the end result--we had extra funds to spend on their good than whats up had for ours. right it fairly is a quote from my first source... ..."by using 1997, the american commerce deficit $a hundred and ten,000 million, and it grew to become into heading larger." returned, our financial gadget is growing to be, and our consumers are figuring out to purchase extra products from in a foreign country. The President does not administration the style you spend Your funds--Neither President Bush nor President Clinton ever had any administration over that.
- ?Lv 51 decade ago
idk what deficit spending means, but I know you gotta spend money to make money.