Federal Deficit

Discussion in 'Economics' started by Bestmiler, Jul 15, 2009.

  1. I don't understand this statement made in an article written today by the WSJ.

    "Meanwhile, the $1 trillion federal deficit is crowding out private investment..."

    How is it that the federal deficit affects private investment?

    Article: http://online.wsj.com/article/SB124762005061042587.html
  2. Federal deficit should imply higher long-term treasury yields, which are used as risk-free basis for all other cost-of-capital calculations. As a result, all discount rates rise, which makes private investment in a project less attractive, simply because the PV of your future cashflows from this project is much smaller.