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Author Topic: Do Budget Deficits Increase interest rates?  (Read 30 times)
playful69
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February 27, 2018, 03:00:41 AM
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When the government runs a budget deficits, the government must borrow money to finance it. so bigger budget deficits mean more government borrowing. the government borrowing competes with borrowing by business and household (in economics lingo, the "demand" for borrowing increases). Democrats smiled and said the deficits were the height of fiscal irresponsibility and harmed the economy. What harm could deficits do to the economy?
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joms07
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March 07, 2018, 01:28:16 AM
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The Deficit and the Debt. ... Second, higher debt levels can make it more difficult for the government to raise funds. Creditors become concerned about a country's ability to repay its debt. When this happens, they demand higher interest rates rise to provide a greater return on this higher risk.
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March 07, 2018, 02:13:42 AM
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Deficits is actually a negative results of income, mostly defecits words apply on some government agencies. Defecits also affects on the budget system, that sometimes government has already planned a projects and then the time comes that the certain projects are about to start but the budget are not yet ready because of the negative income, and that is called a defecit, that's why mostly some government agencies need to borrow money or apply a loan or a project loan.
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March 07, 2018, 03:00:35 AM
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budget deficits do not increase interest rates. how? because it is lesser than the amount that is needed by you. so it does not increasing the interest rates. interest rates will only be applicable if you have something deposited in the bank.
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March 07, 2018, 03:53:17 AM
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What harm could deficits do to the economy?

When the demand for borrowing increases (especially by the government), does that increase rates or not?

Borrowing demand usually follows rates, when rates are low private organizations borrow...because it's cheaper to borrow. Governments don't have that luxury of decision making or use for the borrowed money. It feels like the Government's need to borrow does nothing directly to rates.

Interest rates are driven by the Fed, as policy. They raise rates if they want to slow down the economy. They lower rates if they want to speed up the economy. The latter results in more borrowing (and therefore investment) by the private sector.

Summary: I don't think there's a causal relationship between budget deficits and interest rate movements (up or down).

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