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March 04, 2010

Deficits and debt

With the president's new budget just released there's been much discussion about deficit financing and growth of the national debt. People often use the terms deficit and debt interchangeably. But are they really the same?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"They really are not ... Deficit is what ... in this case, the government borrows in a given year. So when you hear deficit that means the amount the government is borrowing in that year. It's sort of like what you add to your credit card bill -- your credit card balance, if you will, in a given year.

"Debt is the total amount of your outstanding borrowing, which would include borrowing over many years. So again, going back to the credit card example, it would be your outstanding credit card balance.

"This means the debt is always going to be bigger than the deficit. For example, this year the deficit is going to be around $1 trillion -- meaning this year the federal government will borrow about $1 trillion, whereas the debt, the so-called national debt, is $12 trillion. That represents all the borrowing that the federal government has done in fact since its creation that it has not yet repaid.

"So although people use these words interchangeably there are really some technical differences -- big technical differences -- between deficit and debt."

Posted by deeshore at March 4, 2010 09:12 AM