What is the deficit?<\/p>\n
The word deficit<\/i> goes along with the word deficient<\/i>.\u00a0 When more money is being spent than received, the received amount is deficient; the deficit is the amount of money spent in excess of what is being received.\u00a0 For example, let\u2019s say Joe has an after tax income of $400 a week ($20,800 a year, or about $1,733 a month).\u00a0 He has these basic monthly expenses:<\/p>\n Joe needs to pay about $367 more than he is taking home.\u00a0 His annual deficit is $20,800 \u2013 ($2,100 * 12) or $4,400.\u00a0 Since he can\u2019t make his obligations, he starts to borrow money — first from friends, and then Joe gets several credit cards and starts charging some of his expenses.\u00a0 His debt level starts to build up and he has to make payments on the debt, which increases his expenses and thus his deficit gets larger.\u00a0 He realizes that at some point, he\u2019ll run out of credit \u2013 becoming insolvent \u2013 and will have to face the consequences.<\/p>\n Joe\u2019s scenario above is in many ways the same as the US government\u2019s.\u00a0 The major difference is that Joe would likely do something about his problem.\u00a0 Maybe he would get a second job to increase income, or maybe he\u2019d move to a cheaper apartment and go without cable TV to reduce his expenses.\u00a0 Instead, the US government just keeps on spending, spending, and spending some more, as if it doesn\u2019t matter that there\u2019s a deficit.\u00a0 The debt piles ever higher and they begin to resort to dangerous tricks to keep things going.\u00a0 Currently, the deficit is estimated to be around $1 trillion dollars, meaning, the government will spend $1 trillion more than they get.<\/p>\n There\u2019s a second deficit as well, which we call the trade deficit<\/i>.\u00a0 The United States imports a lot more goods than it exports.\u00a0 Exports generate revenue for the US economy, and imports cost money from the US economy, so the net effect is that the United States is losing money every year.\u00a0 Currently, the trade deficit is estimated to be around $750 billion dollars, meaning, the US economy will lose $750 billion dollars by spending that much more on imports than we get for our exports.<\/p>\n Finally, there is a third deficit: the government delaying maintenance on infrastructure such as roads and bridges so that the decay is greater than the maintenance.\u00a0 As the condition of the infrastructure worsens over time, it will cost more and more money to bring things back into good condition.\u00a0 It is difficult to make a good estimate of this deficit, but with more than 700,000 bridges and almost 4 million miles of roads, it is a high number by itself.\u00a0 Overall, only about half of all roads are in good condition, and 11% of bridges — almost 70,000 in total — have been rated as structurally deficient.<\/p>\n It\u2019s difficult to make any sense of such large numbers.\u00a0 A trillion dollars?\u00a0 A thousand billion? A million million?\u00a0 It\u2019s so far removed from anything we\u2019ll ever earn or process that it seems like just a number.\u00a0 A good way to make the numbers easier to understand is to reduce them in size and apply them to a single person or company.<\/p>\n The US Federal government took in about $2.4 trillion dollars in revenue in 2012.\u00a0 This was from income tax, employment taxes, business taxes, estate taxes, and a few others that they collect.\u00a0 Let\u2019s divide by 100 million to reduce the numbers to Joe\u2019s level — $24,000 of after tax income, or about $2,000 a month.\u00a0 With a deficit of around $1 trillion, The government will spend about $3.4 trillion for budgeted items*.\u00a0 This is the same as Joe spending $34,000 a year, or $2,833 a month — $833 a month higher than he earns, racking up $10,000 in debt a year.\u00a0 In just two and a half years, Joe would be $25,000 in debt \u2013 equal debt to what he makes in a year. Next let’s add the second deficit to Joe’s problems — his company is spending more to pay its employees and buy its parts and materials than it is making selling its products — $7,500 a year more.\u00a0 The company is saying that it will need to reduce salaries to return to profitability, which will make Joe’s problems even worse.<\/p>\n Finally, let’s add the third deficit.\u00a0 Joe is so low on money that he isn’t performing the normal periodic maintenance on his car.\u00a0 He’s going a lot of extra miles between oil changes, he hasn’t rotated his tires, and he’s not changing his radiator fluid or doing tune-ups.\u00a0 Eventually, this will catch up with him in the form of either a major repair bill or worse, he will need to purchase a new car much earlier than expected.<\/p>\n Imagine the reaction of Joe\u2019s friends if they found out what he was making, what he was spending, and the rest of his circumstances.\u00a0 They\u2019d clearly recognize that he was on a collision course with reality and they would probably try to stage an intervention for Joe before it was too late.<\/p>\n Even if the US government were to get the deficit under control, which they won’t, we would still be in some very serious trouble with the debt already accumulated.\u00a0 The next post in this series expands on the debt.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":" What is the deficit? The word deficit goes along with the word deficient.\u00a0 When more money is being spent than received, the received amount is deficient; the deficit is the amount of money spent in excess of what is being received.\u00a0 For example, let\u2019s say Joe has an after tax income of $400 a week […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-46","post","type-post","status-publish","format-standard","hentry","category-financial","category-2-id","post-seq-1","post-parity-odd","meta-position-corners","fix"],"_links":{"self":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/46","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=46"}],"version-history":[{"count":11,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/46\/revisions"}],"predecessor-version":[{"id":130,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/46\/revisions\/130"}],"wp:attachment":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=46"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=46"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=46"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
* The US government uses various accounting tricks to hide their spending, such as off budget<\/i> spending, so the real deficit is actually much higher than they admit.\u00a0 The US Post Office, for example, is not counted in the budget, even though it is paid for by the Federal government.<\/p>\n