Making sense of the U.S. national debt and annual budget deficit
If you’re like me, the words “national debt” and “national deficit” bring with them an unshakeable feeling of gloom and doom. It’s not that I lay awake at night worried about the U.S. debt and deficit, but when they do cross my mind, I know that eventually we are all going to have to sacrifice in some way to deal with the financial irresponsibility of our leaders.
Rather than sticking our heads in the sand, however, now is a good time to understand the difference between our nation’s debt and its annual deficit. And then we’ll look at just how big the problem really is.
Annual Budget Deficit vs. National Debt
The United States of America spends a huge amount of money each year on all things that fall under the government’s umbrella. Some of the top spenders are:
- Social work and welfare spending (including Medicare and Medicaid)
- National defense
- The Treasury department (which includes interest on the national debt)
In order to cover all this spending, which far exceeds the federal government’s total revenues each year, the government borrows money from investors. Investors buy US securities, effectively lending America the money it needs to cover the difference between its income and expenses.
This difference is formally known as the “budget deficit.” Deficit essentially means “short fall.” And for almost every year since 1969, America has reported a spending deficit. There were a few years, from 1998-2001, when a surplus was recorded.
The total amount of money America owes to its lenders constitutes the “national debt”. As with all debt, interest is the motivation for lenders to give up their money, and the national debt continues to accrue interest.
So for the deficit, think of the annual shortfall we have to borrow to get by each year. In contrast, the national debt is the accumulation of those shortfalls over the history of our country.
How Big are the Debt and Deficit
Now that we have a sense of the meaning of debt vs. deficit, let’s take a quick, albeit painful, look at this year’s debt and deficit projections. For the total U.S. debt, the image below was captured on November 13, 2010 from the TreasuryDirect.gov and shows the total U.S. debt:
To get a sense of perspective, the table below shows the U.S. debt since 2000:
|Date||U.S. National Debt|
Now let’s take a look at the annual budget deficit numbers. The projected revenue for fiscal year 2011 is $2.57 trillion. Not bad, right? But wait!
The proposed budget for federal spending in 2011 is $3.83 trillion. Don’t get out your calculator, it probably doesn’t even go that high. The deficit here is $1.26 trillion dollars. That means that America will be looking for that $1.27 trillion in loans just this year to cover the short fall.
To give you an historical perspective, here is a bar chart of the U.S. budget deficit over the past 80 years:
Oh, and remember the interest we owe on every loan? Well, the line item for that expense alone is over $250 billion dollars.
What’s Your Share of the National Debt?
If every man, woman and child in the United States received an equal share of the US debt, how much would each pay?
Here’s a rough breakdown:
- Assume the US population to be 310 million (according to the US census info).
- Round the national debt to $13.4 trillion.
Dividing the debt by the population yields: $43,225 per person. And believe it or not, if you’d like to make a voluntary contribution to pay down the U.S. debt, you can. And before you scoff at such an idea, I should tell you that so far in 2010, the U.S. government has received $2,840,466.75 in voluntary contributions.
Photo Credit: Lotzman Katzman