It is, according the U.S. Treasury Department, “the fiscal year difference between what the [federal government] takes in from taxes and other revenues, called receipts, and the amount of money the [g]overnment spends, called outlays.”
Can we translate that out of government-speak?
“The deficit refers to the difference, in a single year, between government receipts and spending,” writes Mark Koba, a senior editor with CNBC. “Those deficits become the national debt when they are added together.”
So, a deficit is the government spending more money than it collects over a one-year budget cycle?
Yes, that’s it in a nutshell.
Let’s talk dollars and cents, then. How large have federal government deficits been in recent years? It’s growing, right?
Well, not really.
The Congressional Budget Office’s most recent projection was for a deficit of $642 billion at the end of the 2013 fiscal year, which concluded Monday. That’s a $200 billion decrease from its February estimate.
It’s also the lowest deficit since the 2008 budget, when the economy was collapsing. CBO projections see a continued shrinking of the deficit through the end of the decade.
When’s the last time the United States didn’t have a budget deficit?
That would be about 12 years ago, during the Clinton administration. A brief string of budget surpluses ended in 2001 when the government had a $128 billion surplus. It’s been rising ever since.
What is the debt?
The U.S. Treasury Department puts it succinctly, “The term national debt refers to direct liabilities of the” U.S. government.
OK, but isn’t there a more basic explanation?
How about this from CNBC’s Koba, “National debt is the sum of all outstanding debt owed by the federal government. It includes not only the money the government has borrowed, but also the interest it must pay on the borrowed money.”
How about a debt/deficit example we can relate to?
“Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing,” New York Times columnist and Nobel Prize-winning economist Paul Krugman wrote in 2012. “They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
“This is, however, a really bad analogy in at least two ways.
“First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
“Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.”
Fine, but what is the current debt?
As of Sept. 30, according to the Treasury Department, it was $16 trillion, or more specifically $16,738,183,526,697.32.
What about the views of an expert?
OK. Joseph Stiglitz is a Nobel Prize-winning economist who has taught at Yale, Oxford, MIT and Columbia, where he’s currently working. He served on the Clinton administration’s Council of Economic Advisers and later as chief economist for the World Bank.
In 2012, he said:
“The fundamental problem is not government debt. Over the past few years, the budget deficit has been caused by low growth. If we focus on growth, then we get growth, and our deficit will go down. If we just focus on the deficit, we're not going to get anywhere.
“This deficit fetishism is killing our economy. And you know what? This is linked to inequality. If we go into austerity, that will lead to higher unemployment and will increase inequality. Wages go down, aggregate demand goes down, wealth goes down.
“All the homeowners who are underwater, they can't consume. We gave money to bail out the banking system, but we didn't give money to the people who were underwater on their mortgages. They can't spend. That's what's driving us down. It's household spending.”
What about a differing view?
Sure, N. Gregory Mankiw teaches economics at Harvard. Before that he was an economic adviser to President George W. Bush.
In 2010, he wrote:
“[E]ven in the long run, a balanced budget is too strict a standard. Because of technological progress, population growth and inflation, the nation’s income and tax base grows over time. If the government’s debts grow at or below that pace, servicing the debt will not become a major problem. That means the government can run budget deficits in perpetuity, as long as they are not too large.”
However, he warned, “The troubling feature of Mr. Obama’s budget is that it fails to return the federal government to manageable budget deficits, even as the wars wind down and the economy recovers from the recession.”
Now, what’s this we’ve been hearing about a debt ceiling?
According to the Council on Foreign Relations (CFR), it “sets the maximum amount of outstanding federal debt the U.S. government can incur by law.”
Is it permission to spend more money?
Nope. The CFR notes, “Increasing the debt limit does not enlarge the nation's financial commitments, but allows the government to fund obligations already legislated by Congress.
“Hitting the debt ceiling would hamstring the government's ability to finance its operations, like providing for the national defense or funding entitlements such as Medicare or Social Security.”
How long has this been going on?
Since 1917 and the passage of the Second Liberty Bond Act. Over the past five decades Congress has raised the debt ceiling more than 70 times.
Has raising it always been controversial?
Not really. Of the past 100 years every president has raised it except for one -- Harry Truman. Ronald Reagan oversaw 18 increases in the debt ceiling. For George W. Bush it was seven times. The ceiling has been raised a handful of times under Obama, who as a senator played politics with the debt ceiling during the Bush administration.
Sure seems like a big deal now, right?
Yes. Congressional Republicans are attempting to extract budgetary and other policy concessions from the president in exchange for raising the debt ceiling.
No dice is Obama’s response. His Treasury Secretary Jacob Lew wrote Congress late last month that Obama “remains willing to negotiate over the future direction of fiscal policy, but he will not negotiate over whether the United States will pay its bills for past commitments.”
Well, how long do we have?
Oct. 17, says Secretary Lew. After that, “If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history,” according to secretary’s letter to Congress.
What comes next if that happens?
Nobody knows for certain, but almost everyone agrees it will be bad … very bad.
Matthew Yglesias, is Slate's business and economics correspondent, called the failure to raise the ceiling “completely unprecedented. There’s no guarantee that it’ll lead to a worldwide financial panic and a massive global depression, but there’s honestly no guarantee that it won’t. Nobody knows what will happen, and you should find that prospect terrifying.”
Adam Davidson of NPR’s Planet Money has written, “Perhaps the government can skimp on its foreign aid or furlough all of NASA, but eventually the big-ticket items, like Social Security and Medicare, will have to be cut. At some point, the government won’t be able to pay interest on its bonds and will enter what’s known as sovereign default, the ultimate national financial disaster achieved by countries like Zimbabwe, Ecuador and Argentina (and now Greece). In the case of the United States, though, it won’t be an isolated national crisis. If the American government can’t stand behind the dollar, the world’s benchmark currency, then the global financial system will very likely enter a new era in which there is much less trade and much less economic growth. It would be, by most accounts, the largest self-imposed financial disaster in history.”
Sounds worse than the federal government shutdown, doesn’t it?
Yes, by almost all account, the shutdown, while painful to many Americans will pale in comparison to what happens if the United States defaults on its debt.