Deficits & Debts: Crash Course Economics #9

CrashCourse
23 Sept 201507:31
EducationalLearning
32 Likes 10 Comments

TLDRThe video explains the differences between deficits, debt, and the debt ceiling. It looks at the current US debt level, which is very high in absolute terms but moderate compared to other developed countries, as well as projected growth driven by social security and healthcare costs. It discusses the implications of rising debt, including higher interest rates and reduced economic growth, as well as the risk of default as seen in Greece. However, the US currently pays very low interest rates, signaling confidence in its ability to repay debt. The debt ceiling only caps borrowing but does not address the underlying issue of spending exceeding revenues.

Takeaways
  • 😀 The national debt is the accumulation of budget deficits over time
  • 💡 The debt ceiling does not actually control debt, just political fights
  • 📉 Rising healthcare costs are the main driver of projected debt increases
  • 🔎 Comparing debt numbers without context can be misleading
  • 🤔 Economists worry more about future deficits than current debt levels
  • 📊 Spending is rising faster than revenue, creating deficits
  • 😮 The US has a very large nominal debt, but moderate as percent of GDP
  • 👵 Social Security and Medicare are the largest spending categories
  • 💸 Low interest rates make servicing debt easier
  • ☠️ Avoiding default requires cutting spending and/or raising revenue
Q & A

  • What is the difference between a budget deficit and debt?

    -A budget deficit is when a government's spending exceeds its revenue in a given year. Debt is the accumulation of deficits over multiple years.

  • What percentage of US GDP is currently debt?

    -The US debt is currently a little over 100% of GDP.

  • Why do many economists focus on debt as a percentage of GDP rather than total debt amount?

    -Because GDP represents the income-generating capacity of the economy. A higher GDP means more capacity to service debt, so debt as a percentage of GDP gives a better measure of sustainability.

  • What are the main spending categories driving projected growth in US debt?

    -Social Security, healthcare and other entitlement programs are projected to drive debt growth as more baby boomers retire.

  • What happens if the US debt grows too large relative to GDP?

    -If debt grows too large, lenders could lose confidence and stop lending or charge higher interest rates, making debt unsustainable.

  • How does the debt ceiling work in the US?

    -The debt ceiling is a legal limit on debt issuance. It does not actually control spending or revenue, so deficits and debt can still increase.

  • Why are interest rates on US debt still low?

    -Low interest rates indicate lenders still have confidence in the US government's ability to repay its debt.

  • What are some signs the US long-term fiscal situation may be improving?

    -Growth in healthcare costs and projected entitlement spending have slowed somewhat in recent years.

  • What happens if the US defaults on its debt obligations?

    -Default would likely cause a recession, as lenders lose money and the government loses credibility.

  • What are the main takeaways about US debt and deficits?

    -It's a complex issue that depends on spending priorities, healthcare costs, GDP growth, and lender confidence. Overall debt levels are manageable for now but projected growth needs addressing.

Outlines
00:00
😀 Introducing Crash Course Economics and defining debt vs deficit

The hosts Adrienne and Jacob introduce themselves and the Crash Course Economics series. They explain the difference between debt and deficit - a deficit is when the government spends more than it brings in through taxes in a given year, and debt is the accumulation of deficits over time. They give an example of a fictional country called Cliffordonia that runs deficits in its first two years, accumulating $300 in debt.

05:05
😟 America's growing national debt and how it compares globally

The US national debt is currently over $18 trillion. Though the raw number sounds high, economists recommend looking at debt as a percentage of GDP, which puts the US debt lower than some other developed nations. The concern is not current debt, but projected future deficits driven by increased spending on retirement and healthcare programs.

🤔 Evaluating the impacts and risks of growing national debt

Increasing government debt could crowd out private borrowing and hurt growth, or make it hard for the US to borrow if investors lose confidence. However, current low interest rates and potentially slowing healthcare cost growth provide optimism. The debt ceiling only limits borrowing but doesn't fix deficits through spending cuts or tax hikes.

😊 Reassurance about the future and concluding the video

The hosts reassure that economic conditions and healthcare costs may evolve in unpredictable ways, so current deficit projections could improve. They conclude by thanking viewers and asking them to support Crash Course on Patreon.

Mindmap
Keywords
💡Deficit
A budget deficit refers to when a government spends more money than it collects in taxes and revenues in a given year. This concept is central to the video's discussion of national debt. For example, the video explains how the fictional country of Cliffordonia runs a $100 deficit in its first year and a $200 deficit in its second year, accumulating a national debt of $300 by the end.
💡Debt
National debt is the accumulation of budget deficits over time. It refers to the total amount of money a government owes its creditors. The video focuses extensively on analyzing the size, growth, and implications of US national debt over time.
💡GDP
GDP or Gross Domestic Product refers to the total value of goods and services produced in a country in a year. The video argues debt should be analyzed as a percentage of GDP rather than absolute numbers, to account for economic growth and repayment capacity.
💡Revenue
Government revenue refers to funds collected from taxes and other sources. Insufficient growth in revenues compared to spending is a major cause of deficits and rising debt, according to the video.
💡Spending
Government spending makes up the other half of deficits when it exceeds collected revenues. The video identifies rising healthcare costs associated with an aging population as the key driver of projected deficits and debt growth in the coming decades.
💡Entitlements
Entitlements refer to major social programs such as Social Security and Medicare which represent close to 50% of current US federal spending. Growth in such programs is expected to massively increase future deficits.
💡Default
Default refers to a government being unable to repay its creditors fully or on time. This can cause economic crisis. The video discusses why the US currently appears unlikely to default despite rising debt levels.
💡Debt Ceiling
The debt ceiling is a legal cap on the total amount the US Treasury can borrow. Battles over raising this limit occur frequently. However, the video argues the ceiling does little to actually control debt and deficits in a meaningful way.
💡Interest Rates
The interest rate paid on government debt obligations affects the likelihood of default as well as the capacity for future borrowing. The video notes that currently low US interest rates indicate faith in the government's creditworthiness.
💡Healthcare Costs
The video identifies rising healthcare expenditures associated with an aging population as the key driver of projected future deficits. It notes that effective cost control could significantly improve US debt sustainability.
Highlights

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Mindfulness practices like mindful breathing and body scans can help healthcare workers become more resilient to stress.

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Mindfulness training helps healthcare professionals become more attentive, present and compassionate.

The researchers recommend incorporating mindfulness into medical and nursing education programs.

Mindfulness practices can foster healing relationships between patients and caregivers.

Transcripts

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