Eye Crosser #6: Debt vs. Deficit

So, OK, we hear about the “debt” vs. the “deficit” quite frequently when listening to politicians, Federal authorities or the Press.  I for one almost.. and I said almost… mentally think of these two concepts as interchangeable.  Angie Drobnic Holan of Politifact.com has written a good article on these two concepts entitled: Debt vs. deficit: What’s the difference?

Here’s an article/definition from the U.S. Dept. of the Treasury: What is the difference between the public debt and the deficit?

Here’s my understanding on the two concepts:

Deficit= difference between what the Federal Government “takes in” and what the Federal Government “pays out.” If you spend more than you earn or in the instance of the U.S. Government, what you collect in taxes, then you have a deficit.

Debt= according to the Treasury site, “One way to think about the debt is as accumulated deficits.” The United States consistently borrows (issues Treasury investment instrument)  more money than it pays back to the loaner. The United States is limited in how much money it can borrow by the Debt Limit. Our Federal debt limit is controlled and determined by the Congress of the United States. In the last few years we have certainly heard a lot about “raising” the debt limit.

Ah, the “Debt Limit”, that’s the annual boxing match between the Congress and the Executive branch of the U.S. government. If the debt limit (or the amount of money that the U.S. can borrow through the sale of Treasury investment instruments, e.g. treasury bonds) must be changed, for instance if the debt limit must be raised, the Congress must agree to it. Sounds like another Eye Crosser topic for later.

Well, I hope that I finally got the definitions “right.”  If not, I’ll just keep trying.

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5 thoughts on “Eye Crosser #6: Debt vs. Deficit

  1. […] Debt vs. Deficit: What’s the Difference? In a nutshell (and that’s a bad analogy so I apologize ahead of time!) Deficits are an accumulation of debt. Please don’t stop reading here, check out my link. It’s a boring but so essential difference for us to understand while listening to the politicians and now in addition, a businessman candidate discussing them. Link to: Debt vs. Deficit:  What’s the Difference? […]

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