National Deficit & Debt. Basic Definitions A budget deficit occurs when an entity (often a government) plans to spend more money than it takes in. The.

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Presentation transcript:

National Deficit & Debt

Basic Definitions A budget deficit occurs when an entity (often a government) plans to spend more money than it takes in. The opposite of a budget deficit is a budget surplus. The debt is the accumulation of all yearly deficits.

"Budget Deficit" vs. "National Debt" Suppose you want to spend more money this month than your income. This situation is called a "budget deficit". So you borrow. The amount you borrowed (and now owe) is called your debt. You have to pay interest on your debt. If next month you don't have enough money to cover your spending (another deficit), you must borrow some more, and you'll still have to pay the interest on the loan. If you have a deficit every month, you keep borrowing and your debt grows. Soon the interest payment on your loan is bigger than any other item in your budget. Eventually, all you can do is pay the interest payment, and you don't have any money left over for anything else. When you get this far “over your head”, this situation is known as bankruptcy.

Brief History of U.S. Debt Each year since 1969, Congress has spent more money than its income (except 3 yrs under Clinton & 1 under G.W. Bush) However, never once was a surplus planned (it was a fortunate mistake!) The Treasury Department has to borrow money to meet Congress's appropriations (allotted spending). The total borrowed is more than $16 trillion and growing. Even when government officials claim to have a surplus, they still spend more than they get in. We pay interest on that huge debt.

The Debt Clock The National Debt is $14.6 Trillion! Updated Nov 29, 2012 That’s a 10% increase from this time last year – some $1.7 Trillion! Expected debt in 10 years: $24 T

How do we “fix” the problem? Your Choices: Think about the possible consequences of each… 1.Borrow more money & stay on the same path 2.Raise Taxes to bring in more revenue 3.Cut Spending to reduce expenditures 4.Raise Taxes AND Cut Spending simultaneously 5.Other ideas????