How the U.S. national debt is different from federal deficit spending

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The difference between government deficit and national debt is the deficit is thought of on an annual basis whereas national debt is long-term. Moreover, the deficit is the total expenditures and costs incurred by the federal government that exceed revenue from sources such as taxes in a given fiscal year, and according to the U.S. Bureau of Public Debt, national debt is the total debt which includes deficits and debt owed on financial instruments that has been accumulated by government over time.

To illustrate further, the annual federal budget deficit does not add the deficit or unpaid balances from previous years of deficit spending. The Congressional Budget Office (CBO) states the deficit is the net amount by which government 'outlays' exceed revenue for a given period. The forecasted budget deficit for 2011 is $1.645 trillion or 10.9 percent of GDP according to the 2012 U.S. Budget released by the U.S. Office of Management and Budget.

The national debt is the total amount owed on financial instruments such as Treasury bonds and deficit spending that has contributed to national debt. The CBO describes national debt as the total value of debt instruments issued by multiple federal agencies. Since the budget deficit is not financed by debt instruments, it is incorrect to conclude the national debt is the cumulative total of all unpaid deficits based on the CBOs definition of each.

Image attribution: Gene Simmons NDAC, CBO; US-PDGov, CC BY-SA 3.0

The U.S. Bureau of Public Debt keeps an ongoing tally of total national debt which was  $14.287 trillion on April 29, 2011. This amount includes public debt and 'intragovernmental' debt which is debt held by government rather than the public. The national public debt was predicted to reach its legal limit on May 16, 2011 according to U.S. Treasury Secretary Timory Geithner and as reported by MarketWatch.

The national debt became a money management controversy when it reached a percentage of Gross Domestic near 100 percent. President Obama addressed this issue by putting forward a proposal to cut this debt by $4 trillion within 12 years according to Bloomberg. However, opposition to this plan did not agree with the amount of tax increases that would be necessary to make the debt decline under Obama's plan.

US-PDGov

In summary, government financing comes in the form of debt instruments such as bonds in addition to revenue from taxes where budgets are thought of in terms of government revenue and expenses where debt is a function of money owed on debt obligations. In light of this, three key variables including the type of financing, the time period for which fiscal policy takes place, and whether or not the negative balances are cumulative defines whether money owed is from an annual deficit or national debt.

Why The U.S. Is Headed Toward More Social Policies

A trend toward socialism in the United States is inevitable for more than one reason. First, this is evident in a Harvard Business School study that found Americans prefer Sweden in terms of income distribution. There are reasons that underlie this socialist sentiment, and they include systemic economic weakness, unsustainable government spending, redirection of tax policy and cultural values.

Economic considerations regarding the effects of tax policy indicate at least a willingness to consider more social tax policies. For example, Economics Professor, Christina D. Roma via the New York Times illustrates how the benefits of conservative tax policy are not quite so clear, and how national debt and income inequality are getting worse; the Occupy movement would probably agree.

Unsustainable health-care spending among other things adds another dimension to why the United States is headed toward socialism. Moreover, Business Insider claims the U.S. health care system is a statistical outlier in terms of health-care spending as a percent of GDP. However, this week the U.S. Supreme Court will evaluate Obama Care per the Los Angeles Times, which also states Socio-care a la Europe and Canada isn't necessarily the right solution. For more on that perspective, an assessment of universal health care might be of use.

The trend to socialism is not just evident in wealth distribution survey results and health-care, it is also evident in our culture. American history demonstrates an unwillingness to bend to the will of aristocracy just because they win the money game, this time it's inter-cultural. To illustrate, the Washington Post and the New York Times publish substantially liberal perspectives on employment and government policy,  consumer sentiment is near 30 year lows, the Center for American Progress exists, and the merits of money-centrism are questioned via the Occupy Movement and publications like Alter Net. 

The economic playing field has changed, new generations of Americans are finding it difficult to outperform their parents financial successes. No longer does post WWII GDP bonanza drive the economy effortlessly, and U.S. global economic dominance has waned along with massive innovation to the economic scale of satellite communications infrastructure, the Internet and corresponding information technology. If the U.S. is to stay economically viable or competitive something has to change, and that could quite possibly lead to policies that enable a wider population to compete.

Financial News 01/09/2012: Economic Can Kicking Getting Trite

Every one to three months, national and world leaders meet to arrive at new quick fixes to tired economic problems. The United States, Greece, and other Eurozone nations have repeatedly used economic band aids such as the two-month payroll tax cut extensions in the U.S., and the long-term refinancing operations by the European Central Bank. Recently, Greece is facing new bond-swap deals to help it avoid debt default per Reuters. In the past Greece has avoided default through legislative austerity measures.

The problems with many of these financing deals, austerity measures, and government bailouts is they do not address the core issues of government gridlock, deficit spending, high national debt, poor economic performance and overall solvency. Real solutions are needed for real problems, and the existing solutions highlight how ill-equipped both the U.S. and European nations are to effectively handle current economic issues.

• AAA: Current average gas price higher than 1 year ago and rising
• WP: 'Carried interest' tax break allows income to be treated as capital gains
• ET:  U.S. Banks facing lower 4th quarter earnings
• CB: Global consumers to spend over $1 trillion in electronics in 2012
• Bloomberg: Hungarian 10-year notes near 10% yield
• Reuters: Chinese 4th quarter inflation forecasted at 4%, GDP 8.7%

42 States Face 2012 Budget Deficits Per The CBPP

The majority of U.S. states continue to face financial pressure and deficit spending according to the Center for Budget and Policy Priorities. California alone has a projected budget deficit of $9.2 billion per Governor's Journal. The result of deficit spending like this reflects the U.S. economy is at a crossroads of sorts, and one where taxes and budget cuts are more real possibilities.

Forecasts of state budget deficits differ. EconMatters, a team of financial research analysts state at least 17 states face budget shortfalls in the 2012 fiscal year. The total 2012 state deficits is thought to reach $41 billion per EconMatters. The Federal government is facing even worse debt problems. The Department of the Treasury reported a 2011 deficit of $1.299 trillion and projects a 2012 deficit of $1.645 trillion per its 2012 budget.

The effect of government debt on the economy will be lack of, or lower stimulus which contributes and is included in gross domestic product calculations. This means corporations will have to generate growth. However, with a shrinking work force per the Department of Labor chart below, increasing entitlement burdens due to more retirees drawing from social security, possible contagion from the Eurozone debt crisis, and slowing growth in China and India, this growth will be challenged.

Department of Labor: Labor participation rate

• BLS: U-3 jobless rate for December 8.5%; U-6 jobless rate 15.2% 
• Ron Paul: U.S. deploying troops to Israel for possible war with Iran
• Blackrock: 2012 will bring volatility, inflation, and economic divergence
• Bloomberg: Italy presses Vatican for taxes
• Marketwatch: Italian 10-year bond yields rise above 7% again
• CNN Money: French credit rating drop near inevitability per Chief dealer

Market, economic and financial commentary for the business week ending 10/14/2011

Stocks rallied for a second week erasing losses. The Dow Jones Industrial Average (^DJI) has almost risen 1000 points or approximately 9.4 percent from its 10/3/2011 low. The reason(s)? Some of the statistical economic data such as September retail sales has been positive and Euro-zone sovereign nations have collectively voted to increase their European Financial Stability Facility (EFSF) to  €440 billion or $610.89 billion to help keep banking solvency and national debt under control. 

There are also short-term trading aspects to the market that can either be ignored or not depending on if one is investing long-term or not. The short-term technical patterns i.e. the way the DJIA line moves up and down quite possibly indicated a slow down in the momentum of rate of change thereby signaling purchases. In other words, less and less people might have began selling when the DJIA approached 10,655 which served as reason to lock in profits from selling-short i.e. buying stocks at an out of the money price to sell at a later point when that out of money price is in the money. High frequency trading algorithms are also designed to look for patterns in market buying and selling which can also accelerate short-term market efficiency.

That said, not much seems to have changed. The trade deficit, deficit spending, unemployment, and lack of strong consumer sentiment remain high, and economic outlooks for Asia and Europe are low or have been lowered. The U.S. may avoid a recession based on recent data, but not by much and that could be all it takes for the global economic engine to also gear down which itself tends to have an accelerator affect i.e. reactionary economics causes spending to slow until a realistic spending opportunity occurs.  

If countries are buying less, why spend more? Europe is spending all its money throwing good money after bad at flailing banks and inefficient economies within an environment of credit downgrades, and the U.S. government has no money left. Corporations claim to be too afraid of regulations, taxes and future economic conditions to justify spending their $1.8 trillion  in capital per the Washington Post, an amount  about $500 billion higher than the Federal fiscal budget deficit of $1.3 trillion per the Congressional Budget Office. That deficit will be added on to last years deficit and the year before that, it's high. 

Corporations are left in the driver's seat because last year government spending was included in GDP data, unemployment will hold back consumer spending and according to the Bureau of Economic Analysis (BEA), the "increase in GDP during the 3rd quarter of 2011 was due to a "decline in imports, and an increase in government spending in addition to fixed residential spending." Interesting how net imports and exports are included in 'gross national product'. Next year the American Recovery and Reinvestment Act funding will wane even more, and what to do with Bush tax cuts in an election year?

The money fight on debt mountain continues on

Republicans and Democrats continue to experience disagreements over something they previously did not have such extensive limitations on, money. Now the national debt has exceeded $14.7 trillion per the U.S. Treasury Department, and deficit spending continues on according to the Congressional Budget Office it has reached a point where caution is not only wise but necessary.

Politicians have to find ways to solve national issues while simultaneously meeting the demands of their constituents. That has lead to political infighting and gridlock that has caused the public to become disturbed by the effectiveness of Washington's problem solving abilities. According to Senator Jeanne Shaheen of New Hampshire "Congress has repeatedly failed to pass 12 annual spending bills on time..." Even before this year, the Atlantic reported 80 percent of the public do not trust the government in reference to a Pew Research Center study.

Image source: Frits Ahlefeldt

Even though administrative goals are attempting to cut deficit spending via a 'Congressional Super Committee', the actual affect on national debt will still be negative. This is because cuts in deficit spending only reduce the amount of debt accumulated each year, and not the national debt which includes budget debt added on from previous years.  This means national debt will continue to expand and Social Security and Medicare 'entitlements' will be pressured to find a sustainable source of financing.

Copyright CC-BY-SA-3.0 Attribution "Unforgettable Fan"

Without an improvement in the economy government tax receipts rise. How that is supposed to occur is one of the things GOP members and Democrats argue about, the latter seeking to raise taxes on the wealthy and the former hoping to boost revenue through deregulation and pro-business legislation. With a Republican majority in the House and a Democratic majority in the Senate ideological differences will either be compromised or lead to legislative delays. For example, Fox News reported only around 70 legislative bills will been signed by the President this year whereas 230 were last year.

Federal trust funds forecasted to add $.9 trillion in debt by 2020

The following table published by the Congressional Budget Office illustrates the problem the federal government faces with spending. There's little doubt something will have to be done and at the moment what some might call two fiscally neolithic options have been laid out spending cuts and taxes. 

Federal Trust Fund Forecast 2009-2020 (In Billions of dollars)
Source: Congressional Budget Office

Solutions in the President's Budget for Fiscal Year 2012 elaborate on these two principles and include eliminating earmarks, disciplined defense spending, corporate tax reform and lowering health care costs. All easier said than done. The following chart published by the Congressional Budget Office illustrates cost associated with Social Security, and Medicare.

The budget also proposes 'freezing' non-security discretionary spending for 5 years, freezing federal civilian worker pay for 2 years, cuts to the Pell Grant program, cuts to teacher quality block grants, 13 discretionary education programs and 'consolidating' 38 K-12 programs to 11.