Deficit

In economics, a deficit is an excess of expenditures over revenue in a given time period.

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• A budget deficit occurs when the government spends more than the revenue it collects. Currently, the US government is running a $1.5 trillion budget deficit, according to Treasury Department data. The nonpartisan Penn-Wharton Budget Model projects it will increase to $2.1 trillion by 2034 if the status quo is maintained.
  The size of the deficit has big implications for Americans. The higher the deficit, the riskier it becomes to hold US debt, which tends to grow when the deficit does. As a result, the government could have to pay higher interest rates to borrow money. That can reduce the amount of investment in other programs the government can make.
  Higher interest rates on government debt, typically sold off in bonds and Treasury notes, could also cause borrowing costs to increase for Americans since the interest rates are connected to interest rates paid to invest in government debt.
  • Elisabeth Buchwald and Matt Egan, “Here’s what could happen to inflation, jobs and the deficit if Trump or Harris win”, CNN, (9/10/2024)

• All during this last 12 years the Federal deficit has roared out of control. Look at this: The big tax cuts for the wealthy, the growth in Government spending, and soaring health care costs all caused the Federal deficit to explode. Our debt is now 4 times as big as it was in 1980. That's right. In the last 12 years we piled up 4 times as much debt as in the previous 200. Now, if all that debt had been invested in strengthening our economy, we'd at least have something to show for our money: more jobs, better educated people, a health care system that works. But as you can see, while the deficit went up, investments in the things that make us stronger and smarter, richer and safer, were neglected: less invested in education, less in our children's future, less in transportation, less in local law enforcement. An awful lot of that money was just wasted. This matters. When you don't invest in jobs and education and economic opportunity, unemployment goes up and our incomes go down. And when the deficit gets bigger and bigger and bigger, the Government takes more of your money just for interest payments. And then it's harder for you to borrow money for your own business or to afford a new home or to send a child to college.
  • Bill Clinton, "Address on the Economic Program", (1993)

• Surging budget deficits have been driving the debt, and the CBO only expects that to get worse.
  The agency forecasts a $1.6 trillion shortfall in fiscal 2024 — it is already at $855 billion through the first seven months — that will balloon to $2.6 trillion by 2034. As a share of GDP, the deficit will grow from 5.6% in the current year to 6.1% in 10 years.
  “Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007–2009 financial crisis, and the corona­virus pandemic,” the report stated.
  In other words, such high deficit levels are common mostly in economic downturns, not the relative prosperity that the U.S. has enjoyed for most of era following the brief plunge after the pandemic declaration in March 2020. From a global perspective, European Union member nations are required to keep deficits to 3% of GDP.
  • Jeff Cox, “Soaring debt and deficits causing worry about threats to the economy and markets”, CNBC, (May 19 2024); quoting Congressional Budget Office, “The Budget and Economic Outlook Report 2024-2034”, (February 2024)

• In 1931 more than forty countries had been on the gold standard; by 1937 virtually none were. Both the United Kingdom and then the United States, the two anchors of the international monetary system, were forced to float their currencies, allowing their central banks to focus on lowering domestic interest rates without worrying about how changes in their gold reserves or capital flows would affect the exchange rate. At the same time, government deficits rose, as a result of increased public spending and collapsing revenues; this happened well in advance of the breakthrough in economic theory represented by Keynes's General Theory of Employment, Interest and Money (1936), though only two countries ran deficits sufficiently large to provide an economic stimulus.
  • Niall Ferguson, The War of the World: Twentieth-Century Conflict and the Descent of the West (2006), p. 196

• The only way you can finance a deficit is by inflation. You cannot raise this amount of money by genuine borrowing. You borrow from the banks, which create credit for the purpose. A large government deficit is a certain way to inflation.
  • Friedrich Hayek, in "Business People; A Nobel Winner Assesses Reagan", The New York Times (December 1, 1982)

• But I have an uncomfortable feeling that this prosperity isn't something on which we can base our hopes for the future. No nation in history has ever survived a tax burden that reached a third of its national income. Today, 37 cents our of every dollar earned in this country is the tax collector's share, and yet our government continues to spend 17 million dollars a day more than the government takes in. We haven't balanced our budget 28 out of the last 34 years. We've raised our debt limit three times in the last twelve months, and now our national debt is one and a half times bigger than all the combined debts of all the nations in the world. We have 15 billion dollars in gold in our treasury; we don't own an ounce. Foreign dollar claims are 27.3 billion dollars. And we've just had announced that the dollar of 1939 will now purchase 45 cents in its total value.
  • Ronald Reagan, A Time For Choosing Address, 1964

• But great as our tax burden is, it has not kept pace with public spending. For decades we have piled deficit upon deficit, mortgaging our future and our children's future for the temporary convenience of the present. To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals. You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we're not bound by that same limitation? We must act today in order to preserve tomorrow. And let there be no misunderstanding: We are going to begin to act, beginning today.
  • Ronald Reagan, First Inaugural Address, January 20, 1981

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Deficit