Money and Main Street
11 of 12
BACKNEXT
Robbing Peter to pay Paul?
Robbing Peter to pay Paul?
Kevin Devaney, 43, owns Evergreen Auto Glass. He is seen here holding his newborn baby daughter, Lyla.
Question: "Part of the economic crisis is supposed to be that there was too much easy credit and debt. Now the government is talking about going another $850 billion or so into debt. How do you pay off debt with debt?" -- Kevin Devaney, Randolph, N.J.

Expert: Mark Gertler, professor of economics, New York University

Answer: "Well, the debt is ultimately paid off either by raising taxes or through economic growth.

First, let's distinguish between the Treasury and the Federal Reserve. The Treasury is responsible for collecting revenues. The two ways they get funds is through taxes and by borrowing.

What the Federal Reserve is charged with doing is setting market interest rates and making sure that the financial system is stable.

Government debt is paid off by the Treasury taking in more money in the future. But that doesn't completely require that tax rates go up. If economic growth goes up, then revenue will go up.

But, in the end, it can mean that the taxes are just being pushed off to another generation."

NEXT: Retirement-account withdrawls?

Last updated April 14 2009: 11:56 AM ET
More Galleries
Revolving door: Washington to Wall Street Former House Majority Leader Eric Cantor is headed to Wall Street. See who else has jumped the political ship for a lucrative career in finance. More
How to keep your naked photos out of hackers' hands Follow these steps to make sure that your nude photos and other sensitive information won't get hacked. More
9 reasons to be excited about Windows 9 Microsoft is expected to begin showing off Windows 9's features later this month. Here are the expected changes you should be thrilled about. More

Special Offer
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.