Federal deficits are necessary to a growing US economy.

Economic growth is currently defined as an increase in gross domestic product, which we measure as the sum of spending on four different sorts of things: consumption spending, investment spending, government spending, and net foreign spending (exports minus imports, or the difference in what foreigners spend into our economy than we spend into theirs). Because economic growth is defined as growth in GDP, and GDP is defined as the amount we spend in the four ways described above, economic growth is an increase in spending. Money is required (obviously) to support spending: it's what is spent. A higher level of economic activity requires a greater amount of money in circulation, or bad things begin to snowball. Spending is not, however, the only thing we do with money. We also save it. Money that is saved is not necessarily invested in anything that creates economic growth. Money is often invested in financial assets which do not result in the payment of wages nor in the production of real goods, and so does not contribute to the growth of GDP. Saving is seen as virtuous in popular culture but, economically, saving is simply money that is received as income which is not spent on real goods or services. The amount of money in circulation, then, must satisfy two demands: the demand for spending and the demand for saving. A persistent trade deficit creates additional demand on the money supply. The purchase of more imports in relation to exports results in more American money being sent overseas than is received from foreign countries for what we export. That money goes overseas with the trade deficit is simply gone. We no longer have it. If it is not replaced, then money must be supplied from some other source in order to maintain the increased levels of spending which constitute an increase in GDP. There are only three possible sources of money: government can create it, banks can create it through lending, or we can obtain it from foreign countries by exporting more than we import. Let's look at each of these sources to determine which are supportive of economic growth. We maintain a persistent trade deficit, so there isn't any realistic possibility of obtaining money for growth through a positive trade balance. The trade deficit is one of the sources of leakage which create the need for new money. Banks also can create money through lending, which they do by expanding their balance sheets. This provides us with liquidity in the short term, which is indeed necessary if we are to spend. Every dollar created by bank lending carries with it a dollar in debt obligation, however, so such money creation is merely temporary. This would not be a problem if lenders charged no interest, but they do charge interest. While bank lending creates money which can be used for investment or consumption spending, it does not create the money required to pay the interest on the loan. When the loan is retired, the interest paid on it necessarily had to come from some other source. Bank lending, therefore, begs the question. It creates a perhaps necessary liquidity in the moment, but it creates no net financial assets to the enduring benefit of the private sector. Because it creates an increasing obligation to pay interest, bank lending as a sole source of money is unsustainable. The money to pay bank interest must ultimately have some source other than the banks themselves. This leaves government to create the money necessary for growth, by default. There simply is no other source. A deficit on government's part is an excess of spending over taxation. The more that government spends in relation to what it taxes, the more money circulates in the economy. Government has the legal authority to issue money. In modern times, no nation uses a commodity (such as gold) as money, nor does it "back" its money with any commodity. Most modern nations retain to themselves the sole legal authority to create money (the nations of the Eurozone are an exception: they have surrendered that authority to the European Union). The method used for money creation is deficit spending, which is followed by central bank action to realize the money associated with that spending in the country's banking system. Deficits and sovereign debt are not the same thing. It's important to understand the difference in order to understand the process of government money creation. In accounting for things, we make two very different sorts of measurements: measures of stocks, and measures of flows. Measurements of stocks tell us how much of a thing is in a pile. The national debt is the measure of a stock. Measurements of flows tell us how much of a thing moves between providers and recipients. Deficits (and surpluses) are flows. Stocks are static things, snapshots in time. Flows are dynamic, telling us about change. When we look at the national debt, it's the sum of all federal deficits. In order to pay off the national debt, we would have to reverse all of the deficits of the past, creating large enough surpluses over a long enough time that the "pile" of debt would disappear. To understand how this works, it's helpful to look at the economy as being divided into three sectors: the private sector, the federal government, and the foreign sector (that is, everybody else in the world). Since a deficit is a flow of money, there must be a corresponding surplus somewhere to match the deficit. If someone is running a deficit, it means they are sending money to some other party. The party receiving the money is running a surplus. All surpluses and all deficits must, therefore, sum to zero: to the penny. If government runs a budget deficit, then, another sector must be running a surplus. Somebody else is receiving the money that government is spending. The government deficit has to be somebody elses surplus, and the surplus has to be received by the private sector. The government's deficit must be, therefore, a surplus to the private sector. The private sector is in a more complex situation than the government is. The private sector deals not only with government, but with the foreign sector. We've already established that we run a trade deficit, so the private sector is in deficit if the government"s budget is balanced. The only way the private sector can retain a surplus, since it runs a trade deficit, is if government spends more than it taxes by an amount at least as large as the trade deficit. That's not ideology, it's an accounting identity. Just to break even (not to grow, just to keep from bleeding), government must deficit spend. If the private sector has any desire to save, then the money it saves (that is, the money it funnels into the financial sector) must be replaced as well. We can now add to our demand for government deficits an amount of money equal to the desire of the private sector to save (money saved or sent overseas cannot be spent to add to GDP). The amount of money that Americans "desire to save" includes the amount of money they must give to the financial sector in interest payments on money they have borrowed from banks. We now require that the government deficit equal the trade deficit plus the private sector demand for savings, or GDP cannot remain stable. If GDP is to grow, then government deficits must be even larger than that. Money must come from somewhere if it is to be spent, and spending is how we measure economic growth. An increase in spending is, by definition, economic growth. The only way we can achieve that is to replace the money lost to our trade deficit, to savings, and to the financial sector (including all the money we pay in bank interest) via federal deficit spending. Only by creating a flow of money from government into the private sector can economic growth be sustained, and the only method for doing that is federal deficits.