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Our most academic publication offers research and surveys on monetary policy, national and international developments, banking, and more. The content is written for an economically informed readership—from the undergraduate student to the PhD.

Vol. 94, No. 6 (Posted 2012-11-01)

The U.S. Deficit/Debt Problem: A Longer-Run Perspective

by Daniel L. Thornton

The U.S. national debt now exceeds 100 percent of gross domestic product. Given that a significant amount of this debt is the result of governmental efforts to mitigate the effects of the financial crisis, the recession, and the anemic recovery, it is tempting to think that the debt problem is a recent phenomenon. This article shows that the United States was on a collision course with a major debt problem for nearly four decades before the financial crisis. In particular, the debt problem began around 1970 when the government decided to significantly increase spending without a corresponding increase in revenue. The analysis suggests that the debt problem cannot be permanently resolved without creating a mechanism to prevent the government from running persistent deficits in the future.

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