Debt and deficit facts

Date posted: June 22, 2012

N.C. State University economist Mike Walden recently gave a public talk about the national debt and deficits. In today’s Economic Perspective, he talks about some of the key facts he presented.

“Well, first the difference between the two, and this always gets confused, I think, by many. Debt is the total amount that the government owes. The deficit is what is added to that total amount each year. So the way to think about this is the debt is sort of like the balance on your credit card. The deficit is what you would add to that balance in a given year.

“Now some facts: Our debt is certainly very high. It’s been rising. But we’re not the highest in the world. Our debt relative to our economy is, for example, smaller than in the United Kingdom, smaller than in Italy, smaller than Japan.

“That’s not to say that we don’t have to worry, but just put that in perspective.

“Secondly who do we owe that debt to? Actually the majority of the national debt is owed to federal agencies, in particular Social Security and the Federal Reserve, as well as other domestic borrowers like you and I … and some of our investment portfolio. We have some Treasury securities, which means we’re … helping to fund the national debt.

“So, the majority is actually owed to either our government or other government agencies or to people in the U.S. — domestic borrowers. Ten percent right now is owed to China. And 23 percent is owed to other foreign investors.

“The interest paid on the national debt, which many economists think is really the best way on a short-term basis to look at the relative size, is actually … the smallest relative to the economy than it’s been in 40 years. And you might say, How’s that so if the debt’s gone up so much? It’s because we have very, very low interest rates.”

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1 Comment to Debt and deficit facts

  1. by Ethan

    On June 24, 2012 at 3:09 pm

    Thank you for simplifying the topic and making it easier to understand. In our business of helping people create a debt repayment plan, we often get asked about the governments debt problem. This is an easy way to explain the differences between the debt and the deficit.

    I was also surprised that there is that much debt owed domestically. The media tends to blow everything out of proportion and would have us believe that we owe China 90%.

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