The words debt and deficit are used regularly in political conversations, news, and opinions. Are you always clear on which is being said and which word matters most in which context? The national debt is how much our country owes to someone else. The deficit is used regularly in two contexts: budget deficit and trade deficit. The budget deficit is the shortfall between what the government takes in as revenues and what it spends. The trade deficit is the difference between imports and exports between the U.S. and other countries. The trade deficit is a topic for another article but if you want to learn about it more I recommend the following:
A simple example will clarify any question about national debt and budget deficit:
Let's say you earn $100,000 per year. You spend $105,000 per year, and you do this every year for the next 10 years. In this scenario you have a $5,000 budget deficit each year. The result of this yearly deficit after 10 years is that you have debt of $50,000. That is more of less the situation our nation has been in for many years now (except with many more zeros). The solution? Often we hear about reducing the deficit, politicians say it all the time, and they rarely talk of eliminating the deficit. Fine, let's run this in our example and see what happens. Let's run our example out another 10 years but during this decade we reduce the budget deficit to $2,000, meaning we still make $100,000 each year and we spend $102,000 each year. After 10 more years our debt is now $60,000. We haven't really fixed anything have we? Our debt is still growing, and that's bad. Often politicians are speaking with the unspoken assumption that we will get a raise each year. That our earnings will move from $100,000 per year to $105,000 per year or more. This would happen if the economy improves and our nation's GDP grew. That would all be fine and good but should we count on it before it happens? How many of our mothers or fathers would advise us to budget with the assumption that we are going to make more money next year. I think that is what they call counting your chickens before they are hatched.
The national debt is almost 14 TRILLION dollars. Yes that's 14,000,000,000,000.00 and it's increasing by over 4 BILLION every day (4,000,000,000.00). Just to put into perspective how large 14 trillion is (because it's hard to get the mind around) if there was a company that had 14 trillion dollars and they began to lose money at the rate of $100,000.00 every min of every day of every year - it would be 266 years before that company was out of money and went bankrupt.
Our government takes in about 2.15 trillion dollars in revenue each year (the salary) and it spends 3.69 trillion (2010 est.) No one is fixing the problem. They are all spending like crazy. The debt is about to reach the tipping point and sink the United States. There are some individuals that have serious plans to address this, but will they ever get enough support from the people to make the serious changes needed to fix such a serious problem?
Every American has to take this basic accounting seriously in our own homes if we don't want to wreck our own lives. Why shouldn't the government have to take the same responsibility and get the nation's financial matters under control? Everyone knows the only way they will ever address this is if we demand it, are you ready to demand it?
