Becoming knowledgeable on the terms commonly used by reporters and politicians can assist in bettering one's understanding of national issues concerning the state of the economy. Terms such as national debt and deficit are commonly bantered around. Here is a brief explanation of these concepts and how they relate with one another.
A deficit is the amount by which a government, agency, individual or corporation overspends its net income in a given period. When politicians or reporters refer to this deficit, they are referencing the nation's deficit, which is the fiscal year difference between the revenue the United States Government accumulates from taxes, investments, receipts and the sum of the money the government spends, called outlays.
In contrast, the national debt is considered to be the accumulated deficits as well as the off-budget surpluses. National debt also includes on-budget deficits that require the U.S. Treasury to borrow and raise the cash needed to cover the expense and keep the government running. When taxes and interest on the Treasury is not enough to cover cost, the government can consider and choose to issue bonds for purchase. Bonds for the government can be bought by any person, party, foreign government, corporation or organization. These investors bid to buy these bonds, and any amount they pay is therefore raised and received by the government. A bond offers the promise that the government will pay back the amount in a flat amount for a specific number of years.
While the current economic situation has created unease about the fiscal stability of the government, other decades have seen high levels of debt and deficits that the government has overcome. According to National Public Radio (NPR), World War II-related debt reached 122 percent of gross domestic product (GDP) in 1946 and was paid down without much negative impact on the economy or average American.
The current deficit has reached an all-time high since World War II, with a deficit of 8 percent of GDP, according to NPR. Determining how much debt is sustainable for the short-term in order to stabilize the nation's economy and promote job creations and consumer confidence is where economists disagree. The ability to make and execute strong, financially sound decisions while maintaining due dedication toward national productivity will determine the US' ability to reverse the current downturn and pursue economic growth.