The National Debt Versus the Budget Deficit

It has come to our attention that there are some people out there in these slightly tarnished but still pretty darn good United States that are a little fuzzy about the difference between the national debt and budget deficit. Don't be ashamed to admit it. It's to the politicians' advantage that the average hardworking American taxpayer doesn't spend too much time on a daily basis pondering exactly where all those tax dollars go and why money collected is always woefully inadequate to meet the bloated excess of money spent.

Face it, the namby pamby boys and girls in Washington are probably a little afraid of a violent revolution if the public ever figured out how deep in the till their fingers really are. That's why obfuscation, misdirection, and sheer banana peel retreat speed rules the day when it comes to discussing the national debt and the budget deficit, though neither is too difficult to understand.

Budget Deficit
You know what happens when you spend more than you make, right? Well, that's what the budget deficit is. Each year all the politicians, lobbyists, and special interest groups get together and make a big wish list of all the things they want to buy with your tax money. Add them up and you have what we call the federal budget, which is really just a written document outlining all the ways Uncle Sam plans to spend your money in the coming year.

The real trouble comes when the budget turns out to be a larger number than the amount of money collected through taxes. In the real world, that means you stop spending. Unfortunately, our federal government never sees fit to do that. They simply ask the Federal Reserve for a loan, print up more money and continue on their merry spending spree.

The annual budget deficit can best be described as the sum of money the government spends that exceeds how much they collect. This amount usually lands somewhere in the hundreds of billions of dollars per year. To translate deficit spending into every day terms, it would be like using your credit card for living expenses. Yes, you surely can do it – for a while – but the end result of spending beyond your means is financial disaster.

National Debt
Since deficit spending is a style of government that has been going on for decades, and there appears to be no end in sight, we have to keep adding the current year's budget deficit to the cumulative total of all the years that have come before. This number is cal

led the national debt and is the sum total of all the money the government has ever spent that it doesn't have. Right now that number sits just under $16 trillion dollars, and has been increasing steadily since the 1980s. Doesn't matter whether a Republican or Democrat is in the White House. Today's economic reality is that the national debt never gets smaller, only bigger.

The logical question a concerned citizen might ask is, “How can this go on forever? Won't we have to pay the bill some day?” One would think that would be the case but that day hasn't come yet. The problem is the flimsy financial house of cards upon which our country rests creates a few unfortunate side effects. One is the continuing devaluation of our currency in the form of inflation. This is why a Snickers candy bar costs $1.25 now when you used to be able to get it for a quarter. You can thank the Federal Reserve and Treasury Department's obsessive printing of money for that.

While our weak sister currency is in danger of losing its status as the world's reserve currency, which is a pretty big deal, by the way, there's another problem afoot and that is the fact we're mortgaging our future to foreign countries like China in the form of T-bills. It works like this. The government realizes it needs more money. Besides simply printing extra, which they're all too happy to do, they also sell treasury notes, which is basically an IOU promising to pay a certain amount of interest in return for cash. It's taking out a loan, pure and simple, and guess who we owe the most money too?

China! Warms the cockles of your heart, doesn't it, to know that a nuclear communist dictatorship whose economy will probably surpass ours in the next few years, holds all that debt over our heads. This is why a budget deficit is bad, bad, bad, and a national debt that reaches current levels is nothing more than a financial bomb waiting to annihilate our way of life.

This is also why the fiscal restraint and reform stressed by Republican presidential candidate Ron Paul is catching the attention of more than a few people. The national debt and budget deficit. Learn them, know them, vote accordingly.

The American Monetary Association

Flickr / Chad and Steph

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