private sectors essentially reallocating its own countries funds to spend on its country. This works fine in a recession, but when the country is at or near its full capability for production it cannot increase supply through investment of deficit dollars. Deficit dollars then translate into demand for goods that aren’t being produced. Referring back to the small business example, if a company is selling all the products it can produce they can still higher another salesman. But since there are no more goods to be sold the salesman only increases the number of consumers demanding the product. Without actually increasing sales. The problems of deficit spending out of a recession even out through two negative possibilities, inflation and crowding out. Inflation means there is more demand or money than there are goods this causes an increase in prices and drives down the worth of the dollar. This depreciation of the dollar counters the cost of the deficit but destroys the purchasing power of the dollar. A five dollar debt is still a five dollar debt even if the five dollars are only worth what used to be a five cent piece of bubblegum. Despite its dangers inflation is used to some extent to curb the debt. Crowding out is when the government is looking for the same capital that the business sector wants to invest. This causes fierce competition for funds to invest. The fierce competition causes an increase in interest rates and often business will decide against further investment and growth. The government may have the money to build new highways but the truckers cannot afford trucks to use on them. The governments needs will “crowd out” business needs. This turns potential assets into waste. However, there is a third option which would allow the government to run a deficit and avoid the negative aspects of inflation and crowding out. Borrowing from foreign sources is a tangible and recently very common practice. Attracte...
