Reducing debt and stimulating the economy are common goals of most governments in developed economies but achieving these objectives often involves tactics that appear to be mutually exclusive and sometimes contradictory. Individuals and economists commonly debate strategies to reduce🉐 the national debt.

1. Bonds

Using Debt to Pay Debt

Governments issue bonds to borrow money and avoid raising taxes. This helps pay expenditures and stimulate the economy through public spending. The government must pay interest to its 澳洲幸运5官方开奖结果体彩网:creditors with debt issues.

Spending can theoretically generate additional tax income from businesses and taxpayers that can be used to pay down debt. Issuing debt may provide a boost to 澳洲幸运5官方开奖结果体彩网:economic growth but it might not𒁏 be effective in reducing🦂 long-term government debt directly.

Buying Back Bonds

Governments seek to stimulate the economy by buying bonds they've issued when the economy struggles. This can happen during periods of high unemployment, The U.S. Federal Reserve implemented quantitative easing and bought government bonds and other financial securities to spur economic growth and aid recovery from the 澳洲幸运5官方开奖结果体彩网:financial crisis of 2007-2008.

Many financial experts favor a quantitative-easing tactic in the short term but buying debt hasn't proved more effective than borrowing the way to prosperity by issuing bonds.

2. Interest Rates

Maintaining interest rates at low levels can help stimulate the economy, generate tax revenue, and ultimately reduce the 澳洲幸运5官方开奖结果体彩网:national debt. Lower interest rates make it easier for individuals and businesses to borrow money for goods and services and this creates jobs and increases tax revenues. Low interest rates have been used as a strategy by the United States, the 澳洲幸运5官方开奖结果体彩网:European Union (EU), the United Kingdom, and other nations during times of economic stre🌼ss.

3. Spending Cuts

The President led the government budgeting process from 1921 through 1974. President Nixon then signed the Budget and Impoundment Control Act of 1974 so Congress could reclaim power over spending. The Congressional Budget Office (CBO) publishes the long-term projections of the federal budget and the future economy every year based on a current snapshot at that time.

Citizens often🐻 waver in their opinions about the need to balance the budget or cut government spending. These cuts often culminate in reductions in benefits to low-income families, veteran pr൩ograms, and environmental protection programs.

4. Raising Taxes

Governments can raise taxes to 澳洲幸运5官方开奖结果体彩网:pay for expenditures and pay down their debt. Taxes can include federal, state, and local income and business taxes. Other tax examples include the 澳洲幸运5官方开奖结果体彩网:alternative minimum tax, "sin" taxes on alcohol and tobacco products, corporate tax, estate tax, 澳洲幸运5官方开奖结果体彩网:Fed𒈔eral Insurance Con♎tributions Act (FICA), and property taxes.

Tax hikes are a common practice but most nations face sizable and growing debts. Increased revenues have little impact on a nation's overall debt level when 澳洲幸运5官方开奖结果体彩网:cash flows increase but spending continues to rise.

5. Bailout or Default

Many nations in Africa have been the beneficiaries of debt forgiveness. Ghana's debt burden was significantly reduced by debt forgiveness in the late 1980s. Greece was given the equivalent of $145 billion in bailout funds by the International Monetary Fund and the European Union to avoid default in 2010.

Default can include bankruptcy and/or restructuring payments to creditors which is a common and often successful strategy for debt reduction.

The Bottom Line

Governments use various strategies to reduce their national debts from issuing debt in the form of bonds to lowering interest rates. Such actions may have short-lived success but they encounter debate. Other measures include 澳洲幸运5官方开奖结果体彩网:implementing a national sales tax as Japan and Canada have done, raising the retirement age for Social Security, or open🦄ing a country's borde💟rs to kick-start consumption and entrepreneurship.