More on the damage that fiscal surpluses do

Government deficit spending is when the government introduces more money into the economy through spending than it removes through taxation. This enables the private sector to increase its savings by exactly the same amount.

Conversely budget surpluses remove financial assets from the economy, forcing the private sector to decrease savings and/or increase debt.

It should come as no surprise then that sustained periods of government surpluses can precipitate financial crises. As noted in a previous post, all six depressions in US history were immediately preceded by several years of budget surpluses. In addition, the financial crash in Japan in 1990 was preceded by budget surpluses. Finally, the Asian financial crisis of 1997 was preceded by US budget surpluses, which created a global shortage of dollars.