There are a few economic consequences of deficit spending, the early deficits were the result of the great depression (William, 1941, p 52). One of the disadvantages of deficit spending can have a bad outcome to the economy due to the government probably will not have any savings during a shortage period. The government is focused on paying back the loan and the interest rate so when there are emergencies, they end up borrowing more money forming a brutal rotation.
The government then tends to increase taxes and prices of supplies, and lower public services, which affects the cities standard of living. If a government is not able to wisely manage their loan, their debt will greatly increase leading them further into a recession. As a result, they will have less money to spend on infrastructure and discourage investors from doing business in their country. It can risk national sovereignty.
Nations or finance institutions that lend money to a country in recession can make certain demands before approving a loan. For example, the government in debt may have to change its spending policies and laws. It may also have to sell off its land and other assets to pay off the debt (Lombardo, 2017). Sarah Palin once said, “To reduce deficit spending and our enormous debt, you reign in spending.
You cut the budget. You don’t take more from the private sector and grow the government with it”.
