1. How bad is running a deficit? ( On mostly a yearly basis )
Running a deficit in of it's self is neither good nor bad. The size of the deficit in comparison to growth is what is truly important. Deficits that grow faster than growth can have inflationary pressures and may weaken the currency; but these are not the only factors as I will attempt to explain later.
2. If the goverment ran a surplus, what should it do with the excess money?
Research grants during prosperity, and there shouldn't be a surplus during resessions but if there was, stimilus to the people. Paying off non intragovernment debt is also an option but as it does almost nothing for the economy or improve the wellbeing of the the American people this is perhaps the least favorable. Paying of intragovernment debt is actually a bad thing.
3. Who holds the largest amount of US debt?
The largest holder of American government debt… is… wait for it…. the american government.
4. Is the US heading on a path similar to greece, ireland, and spain? Needing international bailouts.
No. Besides the fact we are still a ways away from the debt lvls vs gdp of some of these other countries and much better growth and expansion prospects of others. We control the monetary unit that we borrow with, in other words we can simply print more dollars… but Greece, ireland, and spain have to borrow in US dollars and Euros and don't have control over those monetary units.
5. Could there ever be a physical reason the US could not pay of it's debt? (not a political reason as we are seeing right now)
Again no. We could always print more currency, however if the higher and faster we rack up debt the more inflationary pressure we put on our currency. In other words if it gets out of control you would wind up with a hyperinflation scenario.
6. Whats better a strong dollar or a weak dollar?
A strong dollar is one gains in value in comparison to other currencies while a weak dollar is one that loses value in comparison to other currencies. A strong dollar increases your purchasing power of imports while making domestic companies more uncompetitive. While a weak dollar strengthens domestic companies competitiveness and weakens your purchasing power of imports.
To illustrate this imagine two companies that make candy bars, one is located in the US and one in Canada and each cost 1$ in their native currencies.
Assuming the currencies are equal, at the store each candy bar would cost 1$.
If the dollar was strong so that 1 US dollar was worth 2 Canadian, then the American candy bar would sell for 1$ and the canadian bar for 50 cents. Better for the consumer, but will probably put the american candy maker out of business (or they will relocate to canada).
If the dollar weakened so that 1 US dollar was worth 50 canadian cents, the the American candy bar would sell for 1$ and the Canadian for 2$. The consumer isn't as well off, but the American company will much more successfull.
In short the wealthier a person is, the better a strong dollar is, while with a weaker dollar the less likely of losing Jobs to foreign countries.
7. Is there other legal ways for the money supply to increase other than the government printing more money?
The reserve banking system acts as a multiplier on the money supply introduced by the government. The reserve a bank is required to maintain is around 10% of all deposits.
To understand how this increases the money supply, here is an example that is taken from a Harvard business school proffessor.
Person A has 1,000$ and decides to deposit in Bank A.
Bank A then loans up to 900$ to Person B.
While decideing what to spend his loan on Person B keeps it in his own deposit account at bank B.
Bank B uses the deposit to loan out 810$ to Person C.
And so on and so on. As you can see this greatly expands the base amount of currency in circulation, while if Person A should ever wish to collect the original 1,000$ the banks have to call in their loans and the money supply shrinks just as fast as it expanded. This is why our money supply is said to be elastic in that it can expand and contract based on demand. It is also one of the biggest reasons why we AREN'T seeing large amounts of inflation over the last 5 years despite large budget deficits. Even though government is introducing large amounts of cash into the system banks aren't lending anywhere near pre reccession levels and thus the multiple effect on the the currency has been much lower.
8. What is the Japanese lost decade and how is the current situation in the US similar?
The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices greatly inflated.[1] The bubble's collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the current global crisis in 2008. The Japanese asset price bubble contributed to what the Japanese refer to as the Lost Decade. The bubble was characterized by an excessive amount of investment capital, financial deregulation, and monetary easing by the central bank.
These are the same characteristics that produced the current economic climate in the US and thus the world.
9. How is American debt so different than the debt of almost any other country?
Like number 4, the main difference is the the American dollar is the global reserve currency and as such it is what is typically used when loans are made to countries. Having control over the currency makes american debt totally different from any other country.
To get a grip on the american government debt, and why it is so different than personal and business debts; one needs to understand how money is made. Failure to understand this concept is what allows politicians to scare and mislead the public.
When the government needs funds beyond its revenue it gets the funds from the federal reserve, in return for an equivelant amount of bonds. The government spends this money and as such it is released into the economy. IF the federal reserver sells the bonds, there is no effect on the money supply. If the fed doesn't sell the bonds then the money supply is simply increased by said amount. EITHER WAY the amount is added to the federal debt.
Remember that any money that is added to the economy will ultimately be increased in some fashion through credit and bank system.(as described above)
Now very importantly the reverse is also true, paying off the debt can also SHRINK the money supply and that also has the multiple effect from the banking system. In fact if the government had the means to pay off the debt in full, it would be a far worse economical disaster than keeping the current course. (Though that is unsustainable as well)