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The Difference in Federal Defict/Debt, and Why the Debt Doesn’t Really Matter
Posted on 12/8/24 at 1:47 pm
Posted on 12/8/24 at 1:47 pm
I’ve seen these terms thrown around the past couple of weeks and there seems to be confusion between the two, and how they practically affect the economy.
The federal debt and the federal deficit, while interconnected, are distinct financial concepts; the deficit represents the annual shortfall in government revenue compared to spending, whereas the federal debt is the accumulation of past deficits over time, highlighting different aspects of fiscal policy and its implications.
The federal deficit is the amount by which government spending exceeds its revenue in a single fiscal year. When the government spends more than it collects in taxes and other income, it must borrow money to cover the difference, thus increasing the annual deficit. This annual measure reflects immediate fiscal imbalance and can fluctuate with changes in economic conditions, policy decisions, or emergency spending.
The federal debt is the total sum of these annual deficits over time, plus any interest accrued on borrowed funds. It represents the total amount of outstanding government debt obligations. Unlike the deficit, which can be seen as a flow of money, the debt is a stock, accumulating year after year unless there's a surplus to pay it down. It's a measure of long-term fiscal health and the legacy of past fiscal policies.
Here’s why the federal debt isn’t necessarily alarming:
Firstly, the concern over federal debt often overlooks the context of economic growth and inflation. As an economy grows, so does its capacity to manage larger nominal debts. If the debt grows at a rate slower than GDP or inflation, its real burden on the economy might actually decrease. Historical data shows that countries have managed high debt-to-GDP ratios during periods of economic growth without triggering crises, suggesting that debt sustainability is more about economic vitality than the absolute debt number.
Secondly, much of the U.S. federal debt is held domestically, either by citizens or U.S. institutions, which means interest payments largely recycle within the economy rather than being lost to foreign entities. This internal circulation can stimulate economic activity. Moreover, the U.S. dollar's status as the world's reserve currency gives the U.S. unique leverage, allowing it to borrow at lower interest rates, thus reducing the cost of servicing the debt.
This scenario contrasts with countries that must borrow in currencies they do not control, facing higher risks when debt levels rise.
This is why neither party is (apparently) actually serious about reducing our debt.
The federal debt and the federal deficit, while interconnected, are distinct financial concepts; the deficit represents the annual shortfall in government revenue compared to spending, whereas the federal debt is the accumulation of past deficits over time, highlighting different aspects of fiscal policy and its implications.
The federal deficit is the amount by which government spending exceeds its revenue in a single fiscal year. When the government spends more than it collects in taxes and other income, it must borrow money to cover the difference, thus increasing the annual deficit. This annual measure reflects immediate fiscal imbalance and can fluctuate with changes in economic conditions, policy decisions, or emergency spending.
The federal debt is the total sum of these annual deficits over time, plus any interest accrued on borrowed funds. It represents the total amount of outstanding government debt obligations. Unlike the deficit, which can be seen as a flow of money, the debt is a stock, accumulating year after year unless there's a surplus to pay it down. It's a measure of long-term fiscal health and the legacy of past fiscal policies.
Here’s why the federal debt isn’t necessarily alarming:
Firstly, the concern over federal debt often overlooks the context of economic growth and inflation. As an economy grows, so does its capacity to manage larger nominal debts. If the debt grows at a rate slower than GDP or inflation, its real burden on the economy might actually decrease. Historical data shows that countries have managed high debt-to-GDP ratios during periods of economic growth without triggering crises, suggesting that debt sustainability is more about economic vitality than the absolute debt number.
Secondly, much of the U.S. federal debt is held domestically, either by citizens or U.S. institutions, which means interest payments largely recycle within the economy rather than being lost to foreign entities. This internal circulation can stimulate economic activity. Moreover, the U.S. dollar's status as the world's reserve currency gives the U.S. unique leverage, allowing it to borrow at lower interest rates, thus reducing the cost of servicing the debt.
This scenario contrasts with countries that must borrow in currencies they do not control, facing higher risks when debt levels rise.
This is why neither party is (apparently) actually serious about reducing our debt.
27
Posted on 12/8/24 at 1:49 pm to RFK
Shut the frick up
Posted on 12/8/24 at 1:50 pm to RFK
The problem is that we're being taxed to service the interest on the debt.
Posted on 12/8/24 at 1:50 pm to RFK
quote:
Firstly, the concern over federal debt often overlooks the context of economic growth and inflation.
This is ridiculous.
How is that working out for poor folks and middle class people these days?
quote:
This is why neither party is (apparently) actually serious about reducing our debt.
No thats not the reason. Its political suicide to govern through a recession. Thats why they keep adding debt to boost the economy temporarily.
This post was edited on 12/8/24 at 1:52 pm
Posted on 12/8/24 at 1:51 pm to RFK
Except if the debt is carried through the printing of money then inflation sky rockets and becomes another hidden tax that wreaks havoc on Americans.
You cannot print money and control inflation.
You cannot print money and control inflation.
Posted on 12/8/24 at 1:51 pm to Tantal
quote:I don’t disagree, but these taxes/payments are a cyclical stimulus to the economy.
The problem is that we're being taxed to service the interest on the debt.
Not the way I would do things, but this is part of what allows our government to keep increasing the debt year after year.
Posted on 12/8/24 at 1:52 pm to RFK
Do you think there is no implosion point? If there isn’t, why not just double what we are doing now and make everything that much better?
Posted on 12/8/24 at 1:59 pm to RFK
quote:
but these taxes/payments are a cyclical stimulus to the economy.
Have you seen the current Debt:GDP ratio? Because it completely destroys that context argument you’re attempting to gaslight everyone with
This post was edited on 12/8/24 at 2:00 pm
Posted on 12/8/24 at 2:10 pm to RFK
The federal government does not require going into debt even when it deficit spends. Going into debt is private banking welfare.
Posted on 12/8/24 at 2:24 pm to RFK
quote:
Here’s why the federal debt isn’t necessarily alarming:
This is the exact same pivot right wingers did the last time Trump was elected to attempt to justify Trump almost doubling the debt.
Posted on 12/8/24 at 2:28 pm to RFK
Have you let Weimer Germany know you and chatGPT have cracked the code?
This post was edited on 12/8/24 at 2:29 pm
Posted on 12/8/24 at 2:29 pm to RFK
RFK, just stay in your lane and worry about the fruit loops. Leave the finances to the adults.
Posted on 12/8/24 at 2:31 pm to RFK
Downvoting without reading. No one can explain away why we run the government like a crack whore.
Posted on 12/8/24 at 2:33 pm to RFK
quote:
’ve seen these terms thrown around the past couple of weeks and there seems to be confusion between the two, and how they practically affect the economy.
The federal debt and the federal deficit, while interconnected, are distinct financial concepts; the deficit represents the annual shortfall in government revenue compared to spending, whereas the federal debt is the accumulation of past deficits over time, highlighting different aspects of fiscal policy and its implications.
The federal deficit is the amount by which government spending exceeds its revenue in a single fiscal year. When the government spends more than it collects in taxes and other income, it must borrow money to cover the difference, thus increasing the annual deficit. This annual measure reflects immediate fiscal imbalance and can fluctuate with changes in economic conditions, policy decisions, or emergency spending.
The federal debt is the total sum of these annual deficits over time, plus any interest accrued on borrowed funds. It represents the total amount of outstanding government debt obligations. Unlike the deficit, which can be seen as a flow of money, the debt is a stock, accumulating year after year unless there's a surplus to pay it down. It's a measure of long-term fiscal health and the legacy of past fiscal policies.
Here’s why the federal debt isn’t necessarily alarming:
Firstly, the concern over federal debt often overlooks the context of economic growth and inflation. As an economy grows, so does its capacity to manage larger nominal debts. If the debt grows at a rate slower than GDP or inflation, its real burden on the economy might actually decrease. Historical data shows that countries have managed high debt-to-GDP ratios during periods of economic growth without triggering crises, suggesting that debt sustainability is more about economic vitality than the absolute debt number.
Secondly, much of the U.S. federal debt is held domestically, either by citizens or U.S. institutions, which means interest payments largely recycle within the economy rather than being lost to foreign entities. This internal circulation can stimulate economic activity. Moreover, the U.S. dollar's status as the world's reserve currency gives the U.S. unique leverage, allowing it to borrow at lower interest rates, thus reducing the cost of servicing the debt.
This scenario contrasts with countries that must borrow in currencies they do not control, facing higher risks when debt levels rise.
This is why neither party is (apparently) actually serious about reducing our debt.
Dude, if you're wife didn't write this post under your name you are in really big trouble.
Posted on 12/8/24 at 2:35 pm to RFK
It’s impossible for me to disagree more with your post than I do.
Posted on 12/8/24 at 2:45 pm to cadillacattack
quote:
GW is ashamed because 137 years after the formation of this government it abdicated its constitutional monetary responsibilities to a private bank. The irony is so thick with “Federal Reserve Note” printed over GW’s portrait. It should read “United States Note”.
Posted on 12/8/24 at 4:11 pm to RFK
Your reasoning sounds like that of an alcoholic trying to fix his problems by purchasing cheaper booze.
Posted on 12/8/24 at 4:14 pm to RFK
quote:You don't know what Fiscal Dominance is.
Why the Debt Doesn’t Really Matter
...... but you should !
Posted on 12/8/24 at 6:00 pm to RFK
quote:
Moreover, the U.S. dollar's status as the world's reserve currency gives the U.S. unique leverage, allowing it to borrow at lower interest rates, thus reducing the cost of servicing the debt.
even with "lower rates" we're spending 40 percent of revenue to service the debt. it will be 70%+ in 10 years. it's not sustainable by any stretch.
and. it feels like your argument is the same as me saying... yeah I use 40 percent of my income to make minimum payments to mastercard, but it's not a problem because paying that frees up a little credit that I can reuse.
Posted on 12/8/24 at 6:07 pm to RFK
I learned this in Econ 1001 a million years ago. The debt doesn’t matter.
This post was edited on 12/8/24 at 6:09 pm
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