Deficit

A deficit is the falling short of the required amount.  Last month our personal budget fell short.  Our deficit was not due to less revenue but more spending.  The price of gasoline really shot a hole in our cash flows.  We dipped into our savings account.  We try to keep 3 months worth of expenses set aside at our local bank to cover most of the "what ifs" that happen to us all.

If we used up our savings and could not cover our expenses, we would increase the debt side of our balance sheet.  Debt is owing someone else like Visa or Mastercard.  Other normal personal debts are car loans and mortgages and the like.

Deficit is falling short within our budget and debt is what we owe others.  Debt almost always implies interest expense as well which may increase our deficit spending.

The government has been operating without an approved budget for years.  There are mechanisms that just forward the last budget with understood increase by category.  We have been operating with deficit spending. 

Our national debt is currently at over $16,061,094,000,000 increasing by $3,870,000,000 each day!  We have to borrow to cover our deficits and pay interest on this growing debt.

Is this $16 trillion debt normal?  The F.D. Roosevelt and Truman presidencies in the 1930s and 1940s caused the largest increase – a sixteen-fold increase in the gross public debt from $16 billion in 1930 to $260 billion in 1950.  Our debt surpassed $1 trillion for the first time in 1982.

When Obama entered the White House, our budget was running a deficit of about $1 trillion a year.  That's part of our increase in the national debt from $10,626,877,048,913 plus the stimulus package which cost us (you and I) $787 billion in 2009.

In review, if expenses are greater than income, the budget runs a deficit.  To cover the short fall, we go into debt.  Debt includes interest payments and keeps growing over time.  Solutions include increasing income (government calls this revenues) and/or decreasing expenses.

One other note:  A trillion is one million million.  Think of the time/energy/savings it took you to accumulate your first million.  Now do that one million more times.  You would have a trillion.