Debt versus Deficit

Posted December 27, 2014  |  Filed under Fixing The Government

You often hear a politician say they have reduced the deficit, and in some cases they may have. But is that really a good thing? I can tell you that it is not bad, but it is not as good as you may think it is. Let me explain by defining a few terms you may hear politicians use, debt and deficit.

Debt is a simple concept. It is simply the total amount of money owed. And let me make one thing perfectly straight - the money is owed by us taxpayers, not the government. The sad thing is that the national debt is rising every second. The government is borrowing money all the time "in the taxpayers name" to spend haphazardly. And we will have to pay it back. And this debt includes interest that we owe! It is just like a credit card - when you use it, there is interested added to it. As of the writing of this article, we owe more than 18 trillion dollars, and it is growing every second. That's more than $153,000 per taxpayer. And this does not count the unfunded liabilities. I will get into that later. I added a real debt clock below to show you how much we owe and how fast it is growing. If you really want to get an eye full, go check out the www.usdebtclock.org web site. It is a real eye opener.

Just in case you don't know what a trillion dollars is, let me give you some examples. If you take a million dollars and multiply it by 1000, you get a billion dollars. If you then take that billion dollars and multiply it by 1000, you will get a trillion dollars! In other words, a trillion dollars is a million dollars multiplied by a million times!

Now let's talk about the deficit, especially since this is often used by politicians, because they don't want to talk about the debt. And you probably see why with numbers mentioned above.

The deficit is the amount of money that the government spends above and beyond what they take in. It is like your home budget. If you take home $2000 in a month, but spend $2500, you spent $500 more than you took home. You have a $500 "deficit" for that month. You are spending more than they make. This means that you borrowed it or used a credit card. The government is doing the exact same thing. They are spending more money than they are receiving from collected taxes. So they have to borrow the money from countries like China, which is why the debt is constantly going up. They are doing this every year! And they have been doing this for decades. As of this writing, they were taking in a little over 3 trillion dollars in a year, but spending about 3.5 trillion dollars. That is a half of trillion dollar deficit!

Now let me tell you where the real smoke and mirrors comes into play. When a politician says they have lowered the "deficit", that simply means that they are just borrowing less money. There still is a large deficit and the debt clock is till going up. It sounds impressive that they lowered the deficit, but it is not all that impressive, especially since they are usually very small reductions. When I see the debt clock stop rising and start going in the other direction, I will be impressed. And don't forget that a large part of that yearly spending is the interest on the debt we owe. I believe that it is approaching a half of trillion dollars a year on interest alone!

And there is one more thing you need to be aware of. Earlier I mentioned "unfunded liabilities". This is a real bad concept - and it was caused by the government. Let me explain what an unfunded liability is. Some day, you and the rest of the U.S. population, are probably planning on retiring and start receiving social security and Medicaid. Well, where do you think that money is going to come from? At one time, there was a "lock box" fund where all the revenues taken in was kept and it was not touched. This money was invested and was the funding for the future retirements of us taxpayers. Well, some time ago, somebody in the government decided here is a lot of money we can "borrow" to spend. Well they borrowed it, and kept on borrowing it, so all that is left is a bunch of IOU's that will never be repaid. So since there is no money to fund future retirements, all future retirements are "unfunded liabilities". It is a debt! It is money that will eventually need to be paid to people who retire, but it will have to come out of the general spending fund. And there are several of other unfunded liabilities in addition to social security and Medicaid, such as government pension funds. The government provides a nice retirement for all of its employees, to include the elected politicians, when all the rest of us have to contribute to our retirement funds. And keep in mind that all the social security taxes and employment taxes go into the general spending fund, not a lock box fund. By the way, the estimate on the unfunded liabilities raises the national debt from 18 trillion dollars to close to 60 trillion dollars!

So how do we fix this? One group of politicians says we have to raise taxes. Wrong! That won't fix it. They will just spend more. There are only two ways to fix this problem. First, the government needs to drastically reduce spending - and not by a few million dollars each year. They need to totally eliminate the overspending in a huge way. And I don't mean just by having a zero deficit, which means a balanced budget. We need to have a surplus, which is taking in a lot more money than we are spending - that way we can pay off the national debt. If all we had was a balanced budget, then the national debt would never be paid off and we would be wasting a half of trillion dollars a year is interest payments on the debt. We need to get rid of it. The other thing we need to do is to re-establish our lock-box funds so we can eliminate our unfunded liabilities. If we don't, that will always hang over our head just like the national debt. So how do we do these two things? There are many ways to reduce the spending. There are so many things in the government that can be eliminated that can easily reduce this debt. I plan on writing about them in future articles. I also wrote an article on this site titled "Huge Government Budgeting Problem" that can make a huge difference. If you haven't read it, I suggest you doing so. It's an eye opener.

The bottom line is that the government won't do this unless you get on their case. We taxpayers really need to push them. We need to let them know every chance we get. We need to tell them to stop the spending and start getting responsible. One simple letter or phone call won't do it. Remember, it is the squeaky wheel that gets the grease. And if they don't listen - vote them out of office!

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