by Paul on February 14, 2012
A deficit occurs when more money is spent than brought in over a period of time. In a time period when more money is brought in, that is a surplus.
Debt is the cumulative total of money owed as a result of deficits.
Why it matters:
Deficits are due to two factors: Too much spending and/or not enough tax revenue. To close the deficit to generate a balanced budget, a combination of these two factors are generally needed. This is where conservatives and democrats debate over how to solve a deficit, whether to raise taxes (democrats) or lower spending (conservatives).
It’s roll in politics:
When tax revenue is less than government spending, that is a deficit. This is often the case as the US rarely has surpluses. As a result, the US has to borrow money (China provides much of it) and the US debt grows.
The 2011 Federal Budget had a $1.6T deficit, the highest of all time. The 2012 budget is projected to have a deficit of $1.3T.
The US Debt on Valentines Day in 2012 is at $15.4T, which is equal to our GDP, and is rapidly growing. To put it in perspective, the federal debt was near $10T in 2008 and was closer to $5.6T in 2000.
by Paul on February 14, 2012
GDP, or Gross Domestic Product, refers to the value of all goods and services produced within a country over a period of time.
Think of it as your household income. If you make $50K, you base all of your expenses on that $50K. Think of GDP as how much the country produces. At the end of 2011 that number is near $15.4 Trillion.
Why it matters:
GDP is an excellent metric to report statistics on. For example, if I stated a person had a $1,000 rent payment every month, is that a lot? To someone making $30K it is. To someone making $50K it’s about average. But not to someone making $100K or more.
It’s roll in politics:
When you read or hear statistics used when debating a subject, the statistics relative to GDP are more relevant because it takes into account inflation, economic growth, and a time period.
An example:
If it was reported that the United States Federal Government spent $3.6T in a year, is that a lot or a little? $3.6T out of what? In 2011, $3.6T out of $15.4T would be 23.3%. To put it in perspective, historically the US spends about 18% of GDP. 23% tells us that the government is spending quite more than the historical average.
Another example would be that the 2013 Federal budget proposes a deficit of 5.5% of GDP. This is much more valuable in a debate than throwing out $900B because a $900B deficit today is different from $900B in 2008 due to inflation and economic growth.
One last example would be that the US national debt is currently at $15.4T. Well now you know that our debt is equal to what we produce as a nation in one year. In 2008, it was $10T out of a GDP of $14T. In 2000, it was $5.6T out of a GDP of $10T. As you can see, in one decade we went from having our debt being 50% of our economy to 100% of our economy.
