Large amounts of government borrowing can "crowd out" private investment as budget deficits exert upward pressure on interest rates.
If the government borrows large amounts of money, there is less for everyone else, and interest rates tend to rise. Some private borrowers might not be able to afford the higher rates. Of course, many other factors besides deficits influence interest rates, such as the growth rate of the economy and expectations for inflation.
SOURCE: Federal Reserve Bank of New York
National Debt Glossary
Looks up the key terms for understanding America's financial crisis
Frequently Asked Questions: National Debt
- How did the national debt get to be so big?
- What's the difference between the debt and the deficit?
- Why can't the government just print more money to get out of debt?
- How much U.S. debt is owned by foreign countries?