Confusion over the deficit and debt

Date posted: August 8, 2011

The big national economic story is about the deficit and the debt. But the terms can be confusing, so N.C. State University economist highlights some of the differences.

“Well, and I think unfortunately … we hear these two terms used almost interchangeably. But they do mean something specific, and they’re very different. The deficit is what the government — the federal government, and we’re going to apply this to the federal government, what the federal government == borrows on a yearly basis. So, for example, last fiscal year the federal government borrowed about $1.3 trillion. That would be sort of like what you’d put on your credit card in a year.

“The debt is the total amount that the federal government has borrowed over its lifetime but it has not paid off. And right now that number is up around in the multiple trillions of dollars — around … $10 trillion to $12 trillion.

“So, the analogy here would be the debt is like your outstanding balance on your credit card. And the big discussion in Washington right now is not taking the debt to zero. It’s not even taking the deficit to zero, but it’s reducing the size of the deficit. It’s reducing what the federal government borrows each year.

“No one out there that I know of is talking seriously about ever bringing the total debt down to zero, and we probably don’t have to. We can carry some debt. The question is how much.”

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