National Debt vs Deficit

The national debt is of such a huge amount that some of the terminology can get confusing. In this article, we look at the national debt versus the deficit.

National Debt

As the name of this site suggests, we are immensely interested in the national debt level of the country. This simple means the total outstanding amount owed to creditors at any one point in time. The number does not include future unfunded liabilities as it is used in the lexicon of media, politicians and pundits.

Deficit

The deficit is a more amorphous term. It can refer to a specific item of debt such as the trade deficit between the United States and China. In the context of this article and the national debt, the phrase is usually meant to refer to the “annual deficit.”

The annual deficit is the difference between the expenditures of the United States federal government and the amount of money it taxes in via tax revenues. In fiscal year 2011, the deficit is expected to be a staggering $1.7 trillion dollars. This is a huge figure when you consider the government only takes in about $2.3 trillion in taxes each year. We aren’t that far from spending twice as much as we take in each year and that is recipe for disaster.

Relationship

There is a very clear relationship between the annual deficit and national debt. The national debt grows every year we run a deficit. If the federal government could stop running a deficit, the national debt would stabilize. Sadly, there is no sign that either party has the intestinal fortitude to make it happen. Presidents are famous for putting out verrrry optimistic economic forecasts. President Obama has done just that and yet even he expects annual deficits the rest of the decade and a total national debt in the $20 trillion range by 2020.

The national debt and annual deficit have a definite symbiotic relationship. It is not a case of one versus the other. If the annual deficit is not fixed, the national debt never will be either.

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