24 REFINANCING THE NATIONAL DEBT copy

24 REFINANCING THE NATIONAL DEBT copy - Illegal for FED to...

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SECTION 24: REFINANCING THE NATIONAL DEBT
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REFINANCING THE NATIONAL DEBT When bonds become due, the government must pay off the principal. Treasury can use tax revenue if a surplus exists “Refinancing the debt”, or “rolling over the debt”, occurs when Treasury issues new bonds to pay off old bonds
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SHOULD WE PAY OFF THE NATIONAL DEBT? Assume the Federal government has a surplus Treasury can retire some outstanding bonds. National debt decreases Future interest payments decrease. Less tax revenue is needed in the future
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Also, as Treasury pays off debt, more funds become available for other borrowers. Interest rates tend to decrease Stimulates consumer and business borrowing and spending.
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MANY TAX PAYERS PREFER TAX CUTS TO PAYING OFF THE FEDERAL DEBT To pay off the debt, WE MUST HAVE A SURPLUS Many taxpayers prefer cutting current taxes to remove the surplus
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SOME OF THE NATIONAL DEBT IS OWNED BY THE FEDERAL RESERVE SYSTEM The FED can buy government bonds from bond holders FED issues checks or prints new money Bonds are removed from the economy Money is inserted into the economy
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Unformatted text preview: Illegal for FED to purchase directly from the Treasury This guards against excess printing of money Prevents hyperinflation A FED purchase of bonds causes the money supply to increase This is called an OPEN MARKET OPERATION. FED owns about 40% of the total national debt FED uses some of the interest to pay its bills FED returns unneeded interest to the Treasury. Thus, part of the national debt owned by the FED is interest free COST OF THE NATIONAL DEBT The true COST of the national debt is the interest that must be paid on the Treasury securities Current taxes would be lower if there were no Federal debt. THE BENEFIT OF THE NATIONAL DEBT The BENEFIT of the national debt is the fact that current taxpayers have been spared the burden of paying for many of the goods, services, and transfer payments that have been provided by the government. Current bondholders provided the money The national debt never needs to be paid off The Treasury can always refinance the debt...
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24 REFINANCING THE NATIONAL DEBT copy - Illegal for FED to...

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