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Argument: Deficit spending is economically unhealthy in the long run

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Allen Greenspan believes the US debt is economically unhealthy

  • "I have long argued that paying down the national debt is beneficial for the economy: It keeps interest rates lower than they otherwise would be and frees savings to finance increases in the capital stock, thereby boosting productivity and real incomes."[1]
    • One way to interpret what Greenspan said is that when the Government borrows money, it consumes the amount of savings there are to lend. This reduces the amount of money available for private sector lenders to lend, and this scarcity puts pressure on these lenders to increase interests rates and for the national reserve to increase interests rates, as has happened through 2005 and 2006 with rates rising from 1% to 5.25% in August, 2006. This is only a factor, which when combined with others, may indicate that a fiscal crisis is brewing.

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