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How does the federal deficit affect your business?

By Joshua Kurlantzick

Opinions expressed by Entrepreneur contributors are their own.

Although the national deficit often seems like a topic solely ofinterest to academics and policymakers, in reality, it has asignificant impact on small businesses. After decades of deficits,the federal government had balanced its budget by 2000, leadingmany businesspeople to assume the deficit was banished.

But as the foreign capital flowing into the United States hasfallen, and the administration's economic stimulus plans slashtaxes, the deficit has mushroomed. According to Robert E. Scott, aneconomist at the Economic Policy Institute, a Washington, DC, thinktank, as the deficit rises, it forces the value of the dollar downand could lead to a spike in U.S. interest rates. As the Center onBudget and Policy Priorities, a nonpartisan research organizationin Washington, DC, has shown, "higher interest rates wouldraise the cost of borrowing for small businesses, making it harderfor them to [buy] capital equipment and pay off loans."

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