The 2011 U.S. Debt Ceiling Crisis was a contentious debate on the borrowing limit of the United States government in July 2011.

Summary of the Budget Control Act of 2011

Research Update: United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative

The 2011 U.S. Debt Ceiling Crisis was a contentious debate in Congress that occurred in July 2011 regarding the maximum amount of borrowing the federal government should be allowed to undertake. In 1939, Congress gave the Treasury more flexibility in how it managed the overall structure of federal debt, giving it an aggregate limit to work within.﻿﻿ However, by delegating debt management authority to the Treasury, Congress was able to break the direct connection between authorized spending and the debt that finances it. Between 2008 and 2010, Congress raised the debt ceiling from $10.6 trillion to $14.3 trillion.﻿﻿ Then in 2011, as the economy showed early signs of recovery and federal debt approached its limit once again, negotiations began in Congress to balance spending priorities against the ever-rising debt burden. Pro-debt politicians argued that failing to raise the limit would require immediate cuts to spending already authorized by Congress, which could result in late, partial, or missed payments to Social Security and Medicare recipients, government employees, and government contractors. Fiscal conservatives argued that any debt limit increase should come with constraints on the growth of federal spending and debt accumulation.

2011 U.S. Debt Ceiling Crisis

The 25% rule refers to a heuristic for government debt relative to its budget; or it may refer to a royalty income payment scheme.

The Classic 25% Rule and The Art of Intellectual Property Licensing

There are two common usages of the term "25% rule":
1.  The 25% rule is the concept that a local government's long-term debt should not exceed 25% of its annual budget. 2.  The 25% rule also refers to a technique for determining royalties which stipulates that a party selling a product or service based on another party's intellectual property must pay that party a royalty of 25% of the gross profit made from the sale, before taxes. In intellectual property, the 25% rule suggests the reasonable royalty that a license should pay an intellectual property holder on profits. In the intellectual property arena, the 25% rule evolved from the customary rates negotiated between intellectual property holders and licensees. In both uses of the term, the 25% rule is more a matter of customary practice or heuristic (i.e., a rule of thumb), rather than an absolute or optimal threshold, or a strict legal requirement.

25% Rule

A bailout is an injection of money from a business, individual, or government into a failing company to prevent its demise and the ensuing consequences.

Public Law 110-343, Emergency Economic Stabilization Act of 2008

The U.S. Panic of 1792: Financial Crisis Management and the Lender of Last Resort

2010 Report of the Comptroller and Auditor General Volume 1

Report on the Troubled Asset Relief Program—July 2021

JPMorgan Chase and Bear Stearns Announce Amended Merger Agreement and Agreement for JPMorgan Chase to Purchase 39.5% of Bear Stearns

A bailout is when a business, an individual, or a government provides money and/or resources (also known as a capital injection) to a failing company. Lockheed Aircraft Corporation (LMT), Chrysler, General Motors (GM), and the airline industry also received government and other bailout support. Simultaneously, the public found it difficult to get financing, including auto loans, during the financial crisis as banks tightened their lending requirements, further hampering auto sales. The rescue targeted the largest financial institutions in the world who experienced severe losses from the collapse of the subprime mortgage market and the resulting credit crisis. The U.S. government offered one of the most massive bailouts in history in 2008 in the wake of the global financial crisis.

Bailout

In financial planning or the budgeting process, a balanced budget means that revenues are equal to or greater than total expenses.

A balanced budget is a situation in financial planning or the budgeting process where total expected revenues are equal to total planned spending. In a business setting, a company can reinvest surpluses back into itself, such as for research and development expenses; pay them out to employees in the form of bonuses; or distribute them to shareholders as dividends.
In a government setting, a budget surplus occurs when tax revenues in a calendar year exceed government expenditures. When revenues exceed expenses there is a budget surplus; when expenses exceed revenues there is a budget deficit. Proponents of a balanced budget argue that excessive budget deficits saddle future generations with untenable debt. Proponents of a balanced budget argue that budget deficits burden future generations with debt.

Balanced Budget

Universal basic income is a system in which the government provides every adult citizen with a set amount of money on a regular basis, regardless of their need or desire to work.

Who Really Stands to Win from Universal Basic Income?

Ex-Labor Secretary: Some Kind of Cash Handout 'Seems invevitable'

Pope calls for consideration of 'universal basic wage' for unprotected workers

Does Andrew Yang's 'Freedom Dividend' Add Up?

Debunking the Stereotype of the Lazy Welfare Recipient: Evidence from Cash Transfer Programs

Preliminary results of the basic income experiment

Table of Contents
What Is UBI?
Understanding UBI
Political Support for UBI
Momentum for UBI
Criticism of UBI
The Bottom Line
Universal basic income (UBI) is a government program in which every adult citizen receives a set amount of money regularly. While the federal government provides financial support for low-income Americans through the earned income tax credit (EIC), Temporary Assistance for Needy Families (TANF), and other programs, a system of universal income has never taken hold in the United States.
However, the concept has risen to the national consciousness in recent years. Table of Contents
What Is UBI?
Understanding UBI
Political Support for UBI
Momentum for UBI
Criticism of UBI
The Bottom Line
Universal basic income (UBI) is a government program in which every adult citizen receives a set amount of money regularly. One of the core criticisms of basic income is the cost, with some plans representing more than half of the entire federal budget.
The idea of providing a basic income to all members of society goes back centuries. In an Easter 2020 letter, the pontiff wrote the following of a universal basic wage: “It would ensure and concretely achieve the ideal, at once so human and so Christian, of no worker without rights.”
Despite its promise to curtail poverty and cut red tape, universal basic income still faces an uphill battle.

Universal Basic Income (UBI)

A block grant is a sum of money earmarked for a specific program or project that is awarded by the national government to a state or local agency.

A block grant is an annual sum of money that is awarded by the federal government to a state or local government body to help fund a specific project or program. A block grant is an annual sum of money that is awarded by the federal government to a state or local government body to help fund a specific project or program. Notably, the proposal to turn Medicaid into a block grant program was seen as endangering the federal government's ability to guarantee a standard level of service. Three of the better-known block grant programs are earmarked for social services delivered at the local level: Block grants were designed to provide funding for those services with relatively few strings attached, allowing local governments to manage and oversee the programs.

Block Grant

A budget surplus is a situation in which income exceeds expenditures. 

A budget surplus occurs when income exceeds expenditures. The U.S. has rarely run a budget surplus, and has experienced long periods of economic growth while running a budget deficit. During the final years of Bill Clinton's presidency, the U.S. government eliminated a large budget deficit, resulting in a surplus. A budget surplus can occur when growth in revenue exceeds growth in expenditures, or following a reduction in costs or spending or both. The U.S. government ran a budget surplus during the final years of Bill Clinton's presidency.

Budget Surplus

Business to government (B2G) is the sale and marketing of goods and services to federal, state, or local agencies.

How Much Does the Federal Government Spend Each Day?

Business to government (B2G) is the sale and marketing of goods and services to federal, state, or local agencies. The GSA website, GSAAdvantage.gov, is a shopping portal for government agencies and gives an idea of the sheer breadth of products purchased by the federal government.
Not surprisingly, given the enormous numbers and range of federal, state, and local purchasing requirements, an entire sector of the internet is devoted to matching businesses to government agencies. In modern lingo, there are three basic business models: business to consumer (B2C), business to business (B2B), and business to government (B2G). B2G, or business to government, is the provision of goods and services to government agencies at the federal, state, and local levels. At the federal level, the General Services Administration (GSA) is the government's official buying arm, developing and implementing regulations on a vast array of products and services purchased for the U.S. government.

Business to Government (B2G)

The CASB is a U.S. federal government body mandated to promote consistency in cost accounting activities involving government grants and contracts.

Office of Federal Procurement Policy Cost Accounting Standards Board

S.2943 - National Defense Authorization Act for Fiscal Year 2017

The Cost Accounting Standards Board (CASB) is a U.S. federal government body that mandates consistency and uniformity in cost accounting activities for government grants and contracts. The Cost Accounting Standards Board (CASB) is a U.S. federal government body that mandates consistency and uniformity in cost accounting activities for government grants and contracts. The Cost Accounting Standards Board (CASB) is a U.S. federal government body that promotes consistency and uniformity in cost accounting for government grants and contracts. The CASB must ensure that CAS relies on commercial standards and accounting practices and systems; regularly reviews the CAS to ensure conforming standards where appropriate to Generally Accepted Accounting Principles (GAAP); and annually review CAS disputes brought to the Boards of Contract Appeals considering whether greater clarity in the CAS could avoid such disputes. In 2017, Section 820 of the National Defense Authorization Act for Fiscal Year 2017 established a new Defense Cost Accounting Standards Board (D-CASB) to oversee the Cost Accounting Standards' application to defense contracts.

Cost Accounting Standards Board (CASB)

A conduit issuer issues municipal securities to raise capital for projects. A third party or "conduit borrower" uses funds to make payments to investors. 

A conduit issuer is an organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects where the funds generated are used by a third party (known as the "conduit borrower") to invest in some project or activity that has a public benefit. Investors can enjoy a higher return and tax advantage status by purchasing bonds from conduit issuers, but they should keep in mind that the conduit issuer does not back the bonds. Higher returns come with higher risks, and since conduit bonds are not backed by the full faith and credit of the issuing government or agency, it's important for investors to understand they are investing in the project, not the conduit issuer. Taxes, fees, and revenues that secure bonds are collected by the conduit issuer from the borrower and then paid to the bondholders, but the conduit issuer is usually not responsible for repayment. Common types of conduit financing include industrial development revenue bonds (IDRBs), private activity bonds, and housing revenue bonds (both for single-family and multifamily projects).

Conduit Issuer

Consumer debt consists of personal debts that are owed as a result of purchasing goods that are used for individual or household consumption.

Challenges and FDIC Efforts Related to Predatory Lending

Consumer debt consists of personal debts that are owed as a result of purchasing goods that are used for individual or household consumption. As of September 2020, consumer debt was $4.16 trillion, with $3.17 trillion in non-revolving debt and $988.6 billion of revolving debt.﻿﻿ If not managed properly, consumer debt can be financially crushing and adversely impact an individual's credit score, hindering their ability to borrow in the future.
The consumer leverage ratio (CLR) measures the amount of debt that the average American consumer holds, compared with their disposable income. Consumer debt may be segmented into revolving debt, which is paid monthly and may have a variable rate; and non-revolving debt, paid as a fixed rate. Consumer debt is considered a financially suboptimal means of financing because the interest rates charged on the debt, such as credit card balances, are extremely high when compared to mortgage interest rates. Consumer loans can be extended by a bank, the federal government, and credit unions, and are broken down into two categories: revolving debt and non-revolving debt.

Consumer Debt

The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending. 

Nine Facts About the Great Recession and Tools for Fighting the Next Downturn

The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending. The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending. In this respect, public sector expenditures for social welfare can reduce private-sector giving for social welfare, offsetting the government's spending on those same causes. 1:49
The crowding out effect suggests rising public sector spending drives down private sector spending. One of the most common forms of crowding out takes place when a large government, such as that of the U.S., increases its borrowing and sets in motion a chain of events that results in the curtailing of private sector spending.

Crowding Out Effect  (Economic Theory)

The debt ceiling is a limit Congress imposes on the amount of the federal government’s debt. Find out what the U.S. debt ceiling is and its economic impact.

Yellen Warns Lawmakers U.S. Treasury to Hit Debt Limit Oct. 18.

Treasury Dept. Invoke 'Extraordinary Measures' as Congress Misses Debt Limit Deadline.

H.R.3877 - Bipartisan Budget Act of 2019.

The debt ceiling is the maximum amount of money that the United States can borrow cumulatively by issuing bonds. Risk of default and failure to pay interest to bondholders lowers the U.S. credit rating and increases its cost of debt
Controversy over whether the debt ceiling is constitutional
There have been a number of showdowns over the debt ceiling, some of which have led to government shutdowns. Implementing a debt ceiling is practical, allowing the U.S. Treasury to easily issue debt without having Congress approve each and every time the federal government needed to issue debt. Since then, the debt ceiling has been raised or revised 78 times in order to avoid the possibility of default and keep the U.S. economy running, with no signs of Congress turning to other options, despite questions over the debt ceiling's effectiveness. The debt ceiling has been raised or suspended numerous times over the years to avoid the worst-case scenario, which would be a default on U.S. government debt.

Debt Ceiling

Deficit spending occurs whenever a government's expenditures exceed its revenues over a fiscal period. This is often done intentionally to stimulate the economy.

On the Principles of Political Economy and Taxation

In the simplest terms, deficit spending is when a government's expenditures exceed its revenues during a fiscal period, causing it to run a budget deficit. Those from the Chicago School of Economics, who oppose what they describe as government interference in the economy, argue that deficit spending won't have the intended psychological effect on consumers and investors because people know that it is short-term—and ultimately will need to be offset with higher taxes and interest rates. In his 1936 book _The General Theory of Employment, Interest and Employment_, Keynes argued that during a recession or depression, a decline in consumer spending could be balanced by an increase in government spending. This view dates to 19th century British economist David Ricardo, who argued that because people know the deficit spending must eventually be repaid through higher taxes, they will save their money instead of spending it. In the event that extra government spending caused excessive inflation, Keynes argued, the government could simply raise taxes and drain extra capital out of the economy.

Deficit Spending

A deflationary spiral is a downward price reaction to an economic crisis leading to lower production, lower wages, decreased demand, and still lower prices.

Comment: the myths of a deflationary spiral

A deflationary spiral is a downward price reaction to an economic crisis leading to lower production, lower wages, decreased demand, and still lower prices. Some economists have criticized the notion of a deflationary spiral, even going so far as to say that the accepted explanation for the Great Depression—that it was compounded by the impacts of a deflationary spiral—is not correct, and have instead put forth alternative explanations for the economic devastation that caused the Great Depression.
Some economists argue that many of the assumptions of the phenomenon of a deflationary spiral are based on the logical implications of expectations within formal economic models. A deflationary spiral is a downward price reaction to an economic crisis leading to lower production, lower wages, decreased demand, and still lower prices. A deflationary spiral is when price levels decline, leading to lower production, reduced wages, decreased demand, and continued price declines. If monetary policy efforts fail, however, due to greater-than-anticipated weakness in the economy or because target interest rates are already zero or close to zero, a deflationary spiral may occur even with an expansionary monetary policy in place.

Deflationary Spiral

Earmarking means to set money aside for a specific purpose, which applies to both individuals and organizations.

Citizens United v. Federal Election Commission

Earmarking is the practice of setting particular money aside for a specific purpose. In bankruptcy law, the earmarking doctrine allows certain borrowed funds to be excluded from a bankrupt party's assets, as long as they were lent to the borrower 90 or fewer days before the bankruptcy filing and were lent with the express intention of paying a specific creditor. The behavioral economics concept of mental accounting is a case of personal earmarking whereby people allocate money to specific tasks or purposes, making those funds non-fungible. For individuals, earmarking can imbue money with symbolic value based on who or what it is earmarked for, with mental accounting being a special case of self-earmarking one's funds. In 2005, members of Congress pushed to defund the bridge and divert the money to rebuild a bridge destroyed by Hurricane Katrina, but Senator Ted Stevens (R-Alaska) threatened to quit Congress if the earmark was scrapped.

Earmarking

Economic integration is an arrangement among nations to reduce or eliminate trade barriers and coordinate monetary and fiscal policies.

Five Things You Need to Know About the Maastricht Treaty

European Union: share in global gross domestic product based on purchasing-power-parity from 2014 to 2024

Economic integration is an arrangement among nations that typically includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. Economic integration can reduce the costs of trade, improve the availability of goods and services, and increase consumer purchasing power in member nations.
Employment opportunities tend to improve because trade liberalization leads to market expansion, technology sharing, and cross-border investment.
Political cooperation among countries also can improve because of stronger economic ties, which provide an incentive to resolve conflicts peacefully and lead to greater stability.
Despite the benefits, economic integration has costs. Specialists in this area define seven stages of economic integration: a preferential trading area, a free trade area, a customs union, a common market, an economic union, an economic and monetary union, and complete economic integration. Because economists and policymakers believe economic integration leads to significant benefits, many institutions attempt to measure the degree of economic integration across countries and regions. The methodology for measuring economic integration typically involves multiple economic indicators including trade in goods and services, cross-border capital flows, labor migration, and others.

Economic Integration

Economic efficiency is an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste.

Economic efficiency is when all goods and factors of production in an economy are distributed or allocated to their most valuable uses and waste is eliminated or minimized. Some terms that encompass phases of economic efficiency include allocative efficiency, productive efficiency, distributive efficiency, and Pareto efficiency. Pareto efficiency is when every economic good is optimally allocated across production and consumption so that no change to the arrangement can be made to make anyone better off without making someone else worse off.
Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When economic resources are allocated across different firms and industries (each following the principle of productive efficiency) in a way that produces the right quantities of final consumer goods, this is called allocative efficiency. Economic efficiency can involve efficient production decisions within firms and industries, efficient consumption decisions by individual consumers, and efficient distribution of consumer and producer goods across individual consumers and firms.

Economic Efficiency

Electronic benefits transfer is a system similar to a debit card that allows recipients of government assistance to pay directly for purchases.

Table of Contents
Expand The use of EBT programs has expanded recently in response to the COVID-19 pandemic through a program called the Pandemic Electronic Benefits Transfer (P-EBT).
EBT is used most commonly for a program called SNAP, which provides food-purchasing assistance for low- and no-income people.
The EBT system has been in place since 2004 for payments through the Supplemental Nutrition Assistance Program (SNAP) in all 50 states. An EBT or electronic benefits transfer card is a card with a magnetic strip issued to eligible citizens on which benefits for programs like Supplemental Nutrition Assistance Program (SNAP) and Cash Assistance are loaded. EBT cards function more like debit cards; each month recipients receive an allotted amount depending on their income and size of household and their balance decreases with every purchase.
A certain amount of money—depending on the recipient's income and size of household—is loaded onto the recipient's cards each month, however, this money can only be used for certain goods, depending on the program. What Is Electronic Benefits Transfer (EBT)?
Understanding Electronic Benefits Transfer (EBT)
Supplemental Nutrition Assistance Program (SNAP)
Example of EBT
Frequently Asked Questions

Electronic Benefits Transfer (EBT)

A euro medium-term note is a flexible debt instrument issued and traded outside of Canada and the United States and requiring fixed dollar payments. 

About International Securities Identification Number (ISIN)

A euro medium-term note is a medium-term, flexible debt instrument that is traded and issued outside of the United States and Canada. A euro medium-term note (EMTN) is a medium-term, flexible debt security that is issued and traded outside of the United States. The United States has been issuing MTNs since the beginning of the 1970s after introducing the debt instruments as an alternative to short-term financing in the commercial paper market and long-term borrowing in the bond market. A euro medium-term note is a medium-term, flexible debt instrument that is traded and issued outside of the United States and Canada. Over the past 10 to 15 years, medium-term notes have emerged as a significant funding source for U.S. and foreign companies, supranational institutions, federal agencies, and sovereign nations.

Euro Medium Term Note – EMTN

An equalization payment is usually made to a state, province, or individual from the federal government to offset economic or fiscal imbalances.

An equalization payment is a transfer payment made to a state, province, or individual from the federal government for the purpose of offsetting monetary imbalances between different parts of the country or between individuals. Many differences in economic outcomes across regions are the result of factors that are in whole or in part matters of choices made by regional governments or their residents, such as the quality of economic regulation, the taxing and spending habits of governments, and the willingness of local governments and voters to accept the trade-offs that come with economic development. In many countries, there is a vast diversity between states and provinces in terms of the quality of economic institutions, government taxing and spending policies, natural resource endowments, labor force characteristics, etc., that result in different economic outcomes such as availability of employment, economic development, personal incomes, and regional tax bases. Although there is no single formalized equalization payment program in the United States, the many various federal spending programs, social assistance, and federal grants to states tend to have a similar effect, creating net payer and net receiver states with respect to net federal transfers. To the extent that these factors are at play, equalization payments function as subsidies for poor choices by regional governments and voters as well as, conversely, as a penalty imposed on regions whose choices are more favorable to positive economic outcomes.

Equalization Payments

The Fed balance sheet is a financial statement published once a week that shows what the Federal Reserve (Fed) owns and owes.

Monetary Policy and the Federal Reserve: Current Policy and Conditions

The Fed balance sheet is a financial statement published once a week that breaks down the assets and liabilities held by the Federal Reserve (Fed). The weekly balance sheet report became more important as a financial and economic indicator during the financial crisis starting in 2007, when the Fed initiated a policy of quantitative easing (QE).﻿﻿ The Fed balance sheet gave analysts insight into the scope and scale of Fed market operations at the time. Since the 2007-2009 financial crisis, the Fed balance sheet has reflected the Fed's use of quantitative easing (QE) to keep interest rates low for banks and increase the money supply. The Fed balance sheet is a financial statement published once a week that breaks down the assets and liabilities held by the Federal Reserve (Fed). What makes the Fed's balance sheet vastly different than corporate balance sheets is the Fed's ability to create new money at will.

Fed Balance Sheet

The federal budget is an itemized plan for the annual public expenditures of the United States.

The federal budget is an itemized plan for the annual public expenditures of the United States. The budget sent by the President's office does not include mandatory spending, but the document must also include detailed predictions for U.S. tax revenue and estimated budget requirements for at least four years after the fiscal year under discussion. Budgets are calculated on an annual basis, with a fiscal year beginning on Oct. 1 and ending on Sept. 30 of the subsequent year, which is the year for which the budget is named.
Expenses made under the budget are classified as either mandatory or discretionary spending. The federal budget is funded by tax revenue, but in all years since 2001 (and many before that as well), the United States has operated from a budget deficit, in which spending outstrips revenue. There is no requirement for both houses to pass the same (or any) budget; if they don't, budget resolutions from previous years carry over, or the necessary discretionary expenses are funded by individual appropriations bills.

Federal Budget

The Filthy Five refers to a series of power plants that were located in Massachusetts. They were exempt from anti-pollution laws. 

Status of Implementation and Issues of the Clean Air Act Amendments of 1990

Reliable Electricity. Competitive Prices. Clean-Energy Transition

Analysis of Impacts of a Clean Energy Standard as requested by Chairman Hall

The last of the Filthy Five power plants was Brayton Point Power Station in Somerset, Massachusetts, which was a 1,500-megawatt plant and the largest coal-fired plant in New England. Nearly 50 percent of New England's energy now comes from natural gas, while a third comes from nuclear power, according to ISO New England, the organization that oversees the regional power grid. As in other areas of the country, the end of coal in Massachusetts resulted not only from persistent environmental activism, but from a number of economic factors, including stricter pollution regulations, cleaner energy alternatives and a changing market in which coal use had become costly and inefficient. The Salem Station generated power beginning in 1951, but shuttered due to low natural gas prices, low demand for electricity, and tightening Federal pollution rules.

Filthy Five

Financial repression is a term that describes measures by which governments channel funds to themselves as a form of debt reduction.

Financial repression is a term that describes measures by which governments channel funds from the private sector to themselves as a form of debt reduction. Reinhart and Sbrancia indicate that financial repression features:
Caps or ceilings on interest rates
Government ownership or control of domestic banks and financial institutions
Creation or maintenance of a captive domestic market for government debt
Restrictions on entry to the financial industry
Directing credit to certain industries
The same paper found that financial repression was a key element in explaining periods of time where advanced economies were able to reduce their public debt at a relatively quick pace. Financial repression can include such measures as direct lending to the government, caps on interest rates, regulation of capital movement between countries, reserve requirements, and a tighter association between government and banks. The overall policy actions result in the government being able to borrow at extremely low interest rates, obtaining low-cost funding for government expenditures. Financial repression is an economic term that refers to governments indirectly borrowing from industry to pay off public debts.

Financial Repression

Fiscal drag refers to a situation where increased taxes lead to a decrease in consumer spending, resulting in a drag on the economy.

Fiscal drag is an economic term whereby inflation or income growth moves taxpayers into higher tax brackets. This is particularly the case in economies with progressive taxes, or tax brackets, which stipulate that the higher income an individual makes the higher the tax they pay and thus they move into a higher tax bracket. Moving into a higher tax bracket and paying a larger portion of income in taxes, as mentioned prior, results in an eventual slowing of the economy as there is now less income available for discretionary spending. When an economy is rapidly expanding, inflation results in higher income and therefore individuals moving into higher tax brackets and paying more of their income in taxes. Progressive taxation, whereby individuals are moved into higher tax brackets because of inflation or increased income, is a fiscal policy that results in fiscal drag.

Fiscal Drag

A fiscal deficit is a shortfall in a government's income compared with its spending. A government that has a fiscal deficit is spending beyond its means.

Historical Debt Outstanding - Annual 1900 - 1949

Federal Budget Deficit Totals $1.4 Trillion in Fiscal Year 2009

A fiscal deficit is a shortfall in a government's income compared with its spending. In 2020, under President Donald Trump, the deficit reached $3.1 trillion for the entire fiscal year due to a combination of tax cuts and increased spending amid the COVID-19 pandemic and subsequent economic fallout. In 2009, President Barack Obama increased the deficit to more than $1 trillion to finance the government stimulus programs designed to fight off the Great Recession.﻿﻿ That was a record dollar number but actually was only 9.7% of GDP, far under the numbers reached in the 1940s. A government creates a fiscal deficit by spending more money than it takes in from taxes and other revenues excluding debt. Since World War II, the U.S. government has run at a fiscal deficit in most years.

Fiscal Deficit

Fiscal imbalance is a situation in which the future incomes streams for unit of government do not balance the future debt and spending obligations.

Fiscal imbalance occurs when a government's future debt obligations are not in balance with its future income streams. There are two types of imbalances that can impact a government's expenditures and revenue: vertical fiscal imbalance and horizontal fiscal imbalance. Vertical and horizontal fiscal imbalance are the two types of imbalance that can impact a government's expenditures and revenues. A vertical fiscal imbalance occurs when revenues do not match expenditures for different government levels. Fiscal imbalance generally occurs when a government's spending (and resulting debt) outstrips its long-term ability to raise revenue to finance its spending and debt.

Fiscal Imbalance

Foreign debt is debt owed to a lender from another country. It has been on the rise for decades, with many unwelcome side effects.

Foreign debt is money borrowed by a government, corporation or private household from another country's government or private lenders. Long-term external debt data compilation is also collectively accomplished by the World Bank, individual countries that carry foreign debt, and multilateral banks and official lending agencies in major creditor countries. High levels of foreign debt have contributed to some of the worst economic crises in recent decades, including the Asian Financial Crisis and, at least in the case of Greece and Portugal, the Eurozone debt crisis. In addition to the suffering that results from economic stagnation, the United Nations has also linked high levels of foreign debt and a government's dependency on foreign assistance to human rights abuses. Foreign debt, also known as external debt, has been rising steadily in recent decades, with unwelcome side-effects in some borrowing countries.

Foreign Debt

The golden rule, as it pertains to government spending, stipulates that a government must only borrow to invest, not to finance existing spending. 

In fiscal policy, the golden rule seeks to protect future generations from being overburdened by debt by limiting borrowed money only to investments, and not to weigh on future generations for the benefit of current expenditures. The golden rule, as it pertains to fiscal policy, stipulates that a government must only borrow in order to invest, and not to finance existing spending. Countries that have applied some form of the golden rule have experienced a reduction in deficits as a share of gross domestic product (GDP), after many years of deep deficit spending. In other words, the government should borrow money only to fund investments that will benefit future generations, while current spending must be covered and funded by existing or new taxes.

The Golden Rule of Government Spending Defined

Government paper is a debt security that is issued or guaranteed by a sovereign government.

Government paper is a debt security that is issued or guaranteed by a sovereign government. Because of their powers to tax or create legal tender, governments are generally viewed as presenting less default risk to lenders and the interest rates on government paper are often used as benchmarks for risk among market securities.
The U.S. government’s paper is especially viewed as a kind of international standard for a risk-free rate of interest.
Because of their ability to tax or create new, legal tender money, government paper is generally viewed as carrying less risk than otherwise equivalent, privately-issued securities. Risk perceptions of government paper issued by different nations vary widely depending on a number of factors including credit rating, default history, political stability, etc.
As a dominant world geopolitical and financial power and the issuer of the most popular world reserve currency, the U.S. government paper is considered to be among the safest investments and practically risk-free. When an investor purchases a T-Bill, the U.S. government effectively writes investors an IOU; they do not receive regular interest payments as with a coupon bond, but a T-Bill does include interest, reflected in the amount it pays when it matures. A Treasury bond (T-bond) is a marketable, fixed-interest U.S. government debt security with a maturity of 20 or 30 years.

Government Paper

Government purchases are expenditures by federal, state, and local governments, which combined are a key factor in determining GDP.

GDP and the Economy: Advance Estimates for the First Quarter of 2021

An Update to the Budget Outlook: 2020 to 2030

Gross Domestic Product, Fourth Quarter and Year 2020 (Second Estimate)

Government purchases are expenditures on goods and services by federal, state, and local governments. One method of calculating GDP, a measure of the market value of all the final goods and services produced in a specific time period within a country's borders that's used to track the health of a nation's economy, is to add up all spending in four major categories:
Personal consumption
Business investment spending
Government purchases
Net exports
The U.S. Bureau of Economic Analysis (BEA) has a number of sub-categories. For instance, it breaks down government purchases into federal, state, and local spending and also differentiates defense-related federal spending from all other spending. In 2020, the BEA revealed that federal government spending rose, while state and local government spending fell. Government purchases include any spending by federal, state, and local agencies, with the exception of debt and transfer payments such as Social Security.

Government Purchases

Gross National Income (GNI), an alternative to GDP as a way to measure and track a nation's wealth, is the total amount of money earned by a nation's people and businesses.

Gross National Income (GNI) is the total amount of money earned by a nation's people and businesses. To calculate GNI, compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to GDP, while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted. To calculate GNI, compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to GDP, while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted. To convert a nation’s GDP to GNI, three terms need to be added to the former: 1) Foreign income paid to resident employees), 2) Foreign income paid to residential property owners and investors, and 3) net taxes minus subsidies receivable on production and imports. GNI can be much higher than GDP if a country receives a large amount of foreign aid, as is the case with East Timor which recorded a 2020 GNI of $2.4 billion and a GDP of $1.8 billion.

Gross National Income (GNI)

Holocaust restitution payments is money paid by Germany, Austria, and other countries to partly compensate victims persecuted by Nazi Germany or its allies.

Publication 525: Taxable and Nontaxable Income

Negotiations With The German Government Resulted In Increased Social Welfare Services For Holocaust Survivors And First-Ever Payment For Surviving Spouse

ICHEIC Announces Successful Completion of Holocaust Era Insurance Claims Process

Holocaust restitution payments are paid primarily by the governments of Germany and Austria to partly compensate victims of Nazi Germany and its allies. A variety of programs have been made available to the survivors and heirs of the Holocaust, referred to as the period during the 1930s and 1940s when Germany and allied nations undertook a highly organized program to use the apparatus of government to systematically murder and enslave millions of Jews and others considered undesirable by the Nazi regime.
According to the Conference on Jewish Material Claims Against Germany (Claims Conference), these programs include a Hardship Fund, Article 2 Fund, Child Survivor Fund, Orphan Fund, and a fund for heirs. The International Commission on Holocaust Era Insurance Claims (ICHEIC) was established through negotiations between Jewish organizations, the State of Israel, U.S. and European insurers, and insurance regulators to handle claims for restitution payments. In addition, under 1994 federal legislation, Holocaust compensation and restitution payments made to victims of Nazi persecution are excluded from calculations to determine eligibility for federally funded benefits or services. Holocaust restitution payments are not taxable as income at the federal level if the payment is received by someone who was persecuted by the Nazis on the basis of race, religion, physical or mental disability, or sexual orientation—or collected by the heirs or estate of such a person.

Holocaust Restitution Payments

Infrastructure refers broadly to the basic physical systems of a business, region, or nation. Examples include roads, sewer systems, power lines, and ports.

In Our Own Backyard: Principles for Effective Improvement of the Nation's Infrastructure

Infrastructure is the general term for the basic physical systems of a business, region, or nation. Because infrastructure very often involves the production of either public goods or goods that lend themselves to production by natural monopolies, it is very typical to see public financing, control, supervision, or regulation of infrastructure. At smaller scales, infrastructure can also often take on the characteristics of club goods or goods most readily produced by localized monopolies, and can be provided within the context of a private firm producing infrastructure for use within the firm or provided by localized arrangements of formal or informal collective action. Large scale infrastructure is usually produced by the public sector or publicly regulated monopolies, but at smaller scales infrastructure can often be produced by private firms or through local collective action. In 1987, a panel of the U.S. National Research Council adopted the term “public works infrastructure” to refer to functional modes including highways, airports, telecommunications, and water supplies, as well as the combined systems that these elements comprise.

Infrastructure

The International Finance Corporation (IFC) is an organization dedicated to helping the private sector within developing countries.

The International Finance Corporation (IFC) provides financing of private-enterprise investment in developing countries around the world, through both loans and direct investments. The International Finance Corporation (IFC) provides financing of private-enterprise investment in developing countries around the world, through both loans and direct investments. The IFC provided $145 million in financing to help one of the world’s largest dairy producers, FrieslandCampina, acquire a controlling stake of 51 percent of Engro Foods, Pakistan’s leading dairy processor. A member of the World Bank Group, the International Finance Corporation provides financing for private enterprise investments in developing countries. Affiliated with the World Bank, it also provides advisory services to encourage the development of private enterprise in nations that might be lacking the necessary infrastructure or liquidity for businesses to secure financing.

Introduction to the International Finance Corporation

A J-curve is a trendline that shows an initial loss immediately followed by a sharp gain. In a chart, this pattern of activity would have the shape of a capital "J".

A J-curve is a trendline that shows an initial loss immediately followed by a dramatic gain. The J-curve effect is often cited in economics to describe, for instance, the way that a country’s balance of trade initially worsens following a devaluation of its currency, then quickly recovers and finally surpasses its previous performance. The pattern is as follows:
Immediately after a nation's currency is devalued, imports get more expensive and exports get cheaper, creating a worsening trade deficit (or at least a smaller trade surplus).
Shortly thereafter, the sales volume of the nation's exports begins to rise steadily, thanks to their relatively cheap prices. In economics, the J-curve shows how a currency depreciation causes a severe worsening of a trade imbalance followed by a substantial improvement. A J-curve is a trendline that shows an initial loss immediately followed by a dramatic gain.

What Is a J-Curve?

Just compensation refers to the compensation individuals receive when their property gets seized by the government for public use.

Just compensation refers to the compensation individuals receive when their property gets seized by the government for public use. However, individuals who lose their homes through an act of eminent domain may not consider the fair market value of the property to be just compensation for their loss, because it does not take into account the time, stress and cost of moving to a new property. When determining just compensation, the following issues are considered:
The price the property owner would receive if they were willing, not forced, to sell the land can be used to help determine the fair market value of the land. Property owners are paid fair market value for their property but often determining what fair market value is can be difficult. Just compensation is paid to property owners for the legal seizure of personal property or land.

Just Compensation

The Municipal Assistance Corporation was created by the state of New York to aid New York City in its 1970s financial crisis.

Municipal Assistance Corporation for the City of New York (MAC) Collection

The Municipal Assistance Corporation (MAC) was a public-private corporation created by the state of New York in 1975 to aid New York City in an extreme financial crisis. The Municipal Assistance Corporation for the City of New York (MAC) was established through State legislation on June 10, 1975, to address the New York City government's severe fiscal crisis. The Municipal Assistance Corporation (MAC) was a public-private corporation created by the state of New York in 1975 to aid New York City in an extreme financial crisis. In the years that followed the MAC's closure, NYC's revenue has remained stable, although the city was still grappling with a pile of debt—its long-term obligations including pensions, compensated absences for municipal employees (accrued sick and vacation leave payable at retirement), and other post-employment benefits was roughly equal to its bonded debt. MAC's creation and success were due to the combined efforts of public and private institutions and individuals dedicated to restoring the City's fiscal health.

Municipal Assistance Corporation (MAC)

The national savings rate is the amount of GDP that is saved by households, businesses, and the government, which is an indicator of a nation's economic health.

The Evolving Treatment of R&D in the U.S. National Economic Accounts

The national savings rate measures the amount of income that households, businesses, and governments save. The rate is an indicator of financial health and investment, particularly as household savings can be a source of borrowing for governments, allocated toward public works and infrastructure needs.
The first factor in calculating the national savings rate is the national income and product accounts. This is provided by the Bureau of Economic Analysis, which categorizes the private and public sector's money as income, consumption, and savings.﻿﻿ The national savings rate is thus as follows:
> National savings rate = (Income - Consumption) / Income A negative perception can occur among individuals that the overall returns generated by retirement programs will generate more than enough income for their retirement, leading to households not saving more of their income, which would, in turn, reduce the potential of a higher national savings rate. The national savings rate is an indicator of a nation's health as it shows trends in savings, which lead to investments.

National Savings Rate

A net borrower is an entity that borrows more than it saves or lends out. 

Currency Composition of Official Foreign Exchange Reserves

The U.S. Trade Deficit: How Much Does It Matter

U.S. International Trades in Goods and Services, 1992-Present

A net borrower is an entity that borrows more than it saves or lends out. A household that borrows beyond its means may end up losing its house; a business that is highly leveraged may find it difficult to pursue growth opportunities when the economy is strong or may find itself in a financially distressed state when the economy is weak; a government or a nation that carries a heavy debt burden will expose itself to rising interest expenses on its debt and more costly refinancings when it is time to roll over debt maturities; and, perhaps more importantly, a country that places itself in heavy debt to other countries may severely weaken its strategic position vis-a-vis other world powers.
For example, for the U.S., being a net borrower to countries with which it may not see eye-to-eye on key geopolitical issues is not an ideal position. The current account deficits are largely due to the U.S. dollar's status as a global reserve currency and the resulting persistent foreign demand for U.S. dollars and Treasuries, but they have also been attributed to excessive American consumption, fewer competitively-priced goods (which may or may not be connected to exchange rates), fewer competitive goods in terms of quality, and undisciplined government spending on foreign goods.﻿﻿﻿﻿﻿ The U.S. Because many business entities both borrow and loan funds through various financial instruments and other means, it is the net difference between the amount borrowed and lent that is important and determines whether one is a net borrower or net lender. While it can apply to any business entity, household, individual, or organization, it is most often discussed with regard to governmental entities.
Being a net borrow over an extended period of time may run up the risk of accumulating an unsustainable debt burden.

Net Borrower

Odious debt is money that a new government does not want to repay on the grounds of the previous borrowing government's alleged bad actions.

Odious debt, also known as illegitimate debt, is when a country's government changes and the successor government does not want to pay debts incurred by the previous government. The successful application of the concept of odious debt presents a significant risk for investors in sovereign debt and may increase borrowing costs for countries under threat of regime change.
Odious debt is not a concept officially recognized in international law. Odious debt, also known as illegitimate debt, is when a country's government changes and the successor government does not want to pay debts incurred by the previous government. Other than simply wanting to get out of the debt, governments may consider debt odious when previous government leaders used borrowed funds in ways that the new government does not agree with, sometimes claiming that the borrowed funds did not benefit its citizens, and to the contrary, may have been used to oppress them. One obvious moral hazard in labeling debt odious after the fact is that successor governments, some that may have a lot in common with the ones that preceded them, may use odious debt as an excuse to wriggle out of obligations they should pay.

Odious Debt

The Federal Reserve uses open market operations (OMO) to achieve the target federal funds rate it has set by buying or selling U.S. Treasuries.

I find definitions of the federal funds rate stating that it can be both above and below the discount rate. Which is correct

Open market operations (OMO) refers to Federal Reserve (Fed) practice of buying and selling primarily U.S. Treasury securities on the open market in order to regulate the supply of money that is on reserve in U.S. banks. Open market operations (OMO) refers to a central bank buying or selling short-term Treasurys and other securities in the open market in order to influence the money supply, thus influencing short term interest rates. Open market operations (OMO) refers to Federal Reserve (Fed) practice of buying and selling primarily U.S. Treasury securities on the open market in order to regulate the supply of money that is on reserve in U.S. banks. Basically, open market operations are the tools the Federal Reserve (Fed) uses to achieve the desired target federal funds rate by buying and selling, mainly, U.S. Treasuries in the open market. Permanent open market operations (POMO) refers to when a central bank constantly uses the open market to buy and sell securities in order to adjust the money supply.

Open Market Operations (OMO)

Overlapping debt refers to the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction.

Overlapping Local Government Debt and the Fiscal Common

Overlapping debt refers to the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. This means that the widespread practice of overlapping governmental authorities issuing overlapping debt tends to increase the size and fiscal burden of local government as overlapping authorities compete against one another on a political area to exploit the same tax base. Use of overlapping debt and fiscal authorities tends to bias local governance toward greater total spending, total debt, and higher tax burdens. Overlapping debt is when debt issued to fund government activities falls across multiple political jurisdictions, with the joint debt apportioned among them. When the debt of a municipal authority is shared with another government, the debt is referred to as an overlapping debt.

Overlapping Debt

A performance audit is an examination of a program, usually in the government, to determine its effectiveness and suggest any improvements.

Government Auditing Standards 2018 Version

A performance audit is an independent assessment of an entity's operations to determine if specific programs or functions are working as intended to achieve stated goals. The standards for the audits are laid out by the U.S. Government Accountability Office (GAO)
The scope of a performance audit varies, but usually includes an assessment of effectiveness, efficiency, and compliance with legal requirements.
In government, a performance audit is designed to examine the efficiency and effectiveness of a program, with the goal of implementing improvements. A performance audit is an independent assessment of an entity's operations to determine if specific programs or functions are working as intended to achieve stated goals. In the investment world, a performance audit may be conducted on an asset manager by an outside accounting firm to verify that the performance figures shown to the public represent actual results. Typically, a follow-up performance audit is done to assess whether management has implemented any of the audit findings and if there has been any improvement by doing so.

Performance Audit

Pork barrel politics is the legislator's practice of slipping funding for a local project into a larger appropriations bill.

Pork-barrel politics is the legislator's practice of slipping funding for a local project into a budget. 1:26
The annual Congressional Pig Book documenting pork-barrel projects in the federal budget is published by a nonprofit organization called Citizens Against Government Waste (CAGW).
Funding for a local project can be inserted into a larger budget as a line item. The year 2019 was a record-breaker for both the number and cost of pork-barrel projects added to the federal budget, according to CAGW.
Pork barrel politics was probably invented by the first legislator who ever lived, but it survives today, often under the slightly less pejorative term earmarks. CAGW defines a pork-barrel project as a line item in an appropriations bill that designates tax dollars for a specific purpose while circumventing established budgetary procedures.﻿﻿﻿ Entries in the annual Congressional Pig Book Pork-barrel politics is the legislator's practice of slipping funding for a local project into a budget.

Pork Barrel Politics

Public-private partnerships involve collaboration between a government agency and a private-sector company.

Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, and convention centers. Despite their advantages, public-private partnerships are often criticized for blurring the lines between legitimate public purposes and private for-profit activity, and for perceived exploitation of the public due to self-dealing and rent seeking that may occur. Public-private partnerships often involve concessions of tax or other operating revenue, protection from liability, or partial ownership rights over nominally public services and property to private sector, for-profit entities. Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, and convention centers. These partnerships work well when private sector technology and innovation combine with public sector incentives to complete work on time and within budget.

Public-Private Partnerships

Public sector net borrowing is a British term referring to the fiscal deficit.

TRUE COST OF BREXIT VOTE 'IS £440M EVERY WEEK

Brexit: What you need to know about the UK leaving the EU

Public sector net borrowing is a British term referring to the fiscal deficit. Office for Budget Responsibility (OBR), which is an independent statistics watchdog, has echoed the bearish sentiment, forecasting Brexit to lift the U.K.'s deficit and debt, leaving the government pressured to increase taxes, up its spending cuts, or impose a mixture of the two. Public sector net borrowing is the term used for the U.K. government fiscal deficit. The British government has run a budget deficit in most months in recent years, though post-crisis austerity policies have caused its net debt to fall from a peak above £2.3 trillion (or 146% of GDP) in 2010 to less than £2.1 trillion (102%) in the third quarter of 2020. Public sector net borrowing is a British term referring to the fiscal deficit.

Public Sector Net Borrowing

Ricardian equivalence is an economic theory that suggests that increasing government deficit spending will fail to stimulate demand as it is intended.

Ricardian equivalence is an economic theory that says that financing government spending out of current taxes or future taxes (and current deficits) will have equivalent effects on the overall economy. Because investors and consumers adjust their current spending and saving behaviors based on rational expectations of future taxation and their expected lifetime after-tax income, reduced private consumption and investment spending will offset any government sending in excess of current tax revenues. Ricardian equivalence is an economic theory that says that financing government spending out of current taxes or future taxes (and current deficits) will have equivalent effects on the overall economy. Ricardo argued that under certain circumstances, even the financial effects of these can be considered equivalent, because taxpayers understand that even if their current taxes are not raised in the case of deficit spending, their future taxes will go up to pay the government debt. The theory argues that people will save based on their expectation of increased future taxes to be levied in order to pay off the debt, and that this will offset the increase in aggregate demand from the increased government spending.

Ricardian Equivalence

Sovereign debt is issued by a national government in a foreign currency in order to finance the issuing country's growth and development.

Sovereign debt is a central government's debt. Sovereign debt is also called government debt, public debt, and national debt. Although sovereign debt will always involve default risk, lending money to a national government in the country's own currency is referred to as a risk-free investment because, with limits, the debt can be repaid by the borrowing government through raising taxes, reducing spending, or simply printing more money. Debt classified as short-term debt typically lasts for less than a year, while debt classified as long-term debt typically lasts for more than ten years. Sovereign debt can either be internal debt or external debt.

Government Spending and Debt

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Terms in Government Spending and Debt