- When the Treasury issues bonds, it soaks up funds that could otherwise be used for private investment. Public borrowing ‘crowds out’ private investment.
- A growing portion of federal spending must be allocated to service the debt. That portion depends on interest rates which have been kept low, but other things constant…
- The primary danger is that it constrains the state. We’re Keynesians; in downturns we use fiscal policy – tax cuts and / or spending hikes – to stimulate the economy. Now, with interest rates still low and our debt having grown, it could trickier business to stimulate the economy.
Running budget deficits increases a nation’s trade deficit. Economists aren’t particularly troubled by trade deficits themselves, but it seems to bother some folks. Trade deficits aren't much about ‘lousy trade deals.’