Author: John Bouman

Characteristics of a Gold Standard System A gold standard is a system in which a certain fixed amount of a country’s currency is legally exchangeable for gold. Because the ratio of gold to the money supply is fixed, the quantity of money can only grow as much as the supply of gold is growing. Because of the difficulty of mining and acquiring gold, gold supply growth is typically limited to 1 or 2% per year. If the government adheres to a pure gold standard, the money would grow by only 1 or 2%, as well. Properly implementing a pure gold standard provides a better guarantee that inflation remains low or non-existent for many years to come. It is, therefore, a step in the right direction, compared to the system we currently have. According to Andrew Bernstein (The Capitalist Manifesto, Bernstein A., 2005, p. 374): “An international gold standard is mankind’s primary protection against arbitrary expansion of the money supply by the politicians. Because gold is relatively rare in nature, and its mining generally involves laborious and expensive work, the money supply grows only gradually. The technological progress of free men leads to an increase in the supply of goods that generally exceeds the increase in the supply of gold.” George Reisman in Capitalism notes that “the result would be that prices would show a tendency to fall from year...

What’s in This Chapter? What is the difference between a federal budget deficit and a national debt? This unit defines each concept, and describes the relationship between a country’s deficit and its national debt. The national debt has been the subject of many controversies in recent years. Due to the influence of John Maynard Keynes, countries became more comfortable running deficits during and after the Great Depression. Keynes recommended for governments to run deficits during recessions, and surpluses during expansions, but most countries’ central governments have run deficits nearly every fiscal year, even during expansions. National debts in many countries have skyrocketed during the past several decades. Some people are not concerned about debts and deficits; others are. How important is it for a government to limit its national...

Deficits and Surpluses A government incurs a budget deficit when it spends more than it receives. For example, if a government spends $7 trillion and it receives $5 trillion from tax revenue and other sources, it incurs a deficit of $2 trillion. A government runs a budget surplus when it receives more than it spends. For example, if a government spends $4 trillion and receives $5 trillion in revenue, it runs a surplus of $1 trillion. For up-to-date statistics on recent United States deficits and surpluses, visit Congressional Budget Office and scroll down to “Budget”. A budget deficit is often confused with a nation’s national debt. Budget deficits and surpluses are yearly figures, whereas national debts represents the accumulation of all past deficits and surpluses. Debt trends are covered in Sections 2 and 3 of this unit. Video Explanation For a video explanation of deficit and debt calculations, please visit: The Clinton Surpluses Since the 1930s, United States federal budget deficits have occurred much more frequently than budget surpluses. After World War II, only in 1969 and during the latter years (1998 through 2000) of the Clinton administration did the United States experience budget surpluses. Deficits turn into surpluses when either government spending decreases or government revenue increases, or both happen. During the Clinton administration, federal government spending increased, but at a modest pace. Because of strong economic growth,...

National Debt Definition The national debt is a government’s sum of all deficits minus the sum of all surpluses from this and previous years. The more a government borrows each year, the more the national debt rises. Example of a National Debt Calculation If, hypothetically, a country is running a deficit in year 1 of $250 billion, in year 2 of $300 billion, in year 3 of $200 billion, and in year 4, a surplus of $100 billion, then (assuming no other deficits or surpluses) the country’s total national debt is $250 + $300 + $200 -$100 = $650 billion United States National Debt Data In the United States, at the beginning of the Reagan administration in 1980, the national debt was “only” $930 billion (see table below). It then grew to $2,600 billion by the end of his administration in 1988, an almost three-fold increase. It has continued to increase thereafter at a rapid pace during most years. Currently, in the United States, stimulus spending, the increasing burden of the Social Security program, rising costs of health and medical programs, defense-related spending, and  rising interest payments on the national debt are putting a strain on the government’s purse. This year the United States national debt will exceed $38 trillion. For an up-to-the-minute account of our national debt, please see: US National Debt Clock. Below is a table with...

The Debt as a Percentage of Gross Domestic Product Below is a table of the top 20 countries with the most national debt as a percentage of their nominal GDP. Japan, Venezuela, and Sudan earn the dubious honor of taking the gold, silver, and bronze medal, respectively. The United States ranks 11th. In general, countries’ national debt as a percentage of their GDP is showing a rising and alarming trend. Country Public Debt as a Percentage of nominal GDP * (2024) 1. Japan 250 2, Eritrea 219 3. Lebanon 195 4. Venezuela 158 5. Sudan 150 6. Singapore 177 7. Greece 169 8. Italy 135 9. Cape Verde 127 10. Bhutan 125 11. United States 124 12. Bahrain 120 13. Cuba 119 14. Suriname 117 15. Sri Lanka 114 16. Portugal 112 17. Spain 112 18. France 111 19. Canada 108 20. Belgium 104 Source: International Monetary...