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Understanding the Government “Deficit”

user profile picture Chris Martenson Sep 10, 2008
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There is some confusion about what constitutes the federal deficit.  Below I explain the differences between what is reported and what is really happening.  

Reader TnAndy writes, "I keep hearing this figure of a "budget deficit" tossed around……why is it no one talks about the ACTUAL deficit rather than some smoke and mirrors number ????"

Great question.  It is important to note that "deficit" refers to the yearly operating shortfall, while "debt" refers to the sum total of all the past deficits.  Clinton did NOT eliminate the debt; that grew each year under his directorship.  The deficit fell during his tenure, and only under the narrowest of interpretations.   However, as we shall see, that narrow interpretation was not at all reflective of reality.

1) The ‘deficit’ is the headline number widely reported by DC and broadcast through the airwaves by journalists, who seem to remain confused, thinking that a "deficit" could simply be viewed as revenues minus
expenses. Instead, "the deficit" is a fantasy number that excludes all sorts of items, such as money borrowed from the Social Security program, and the cost of foreign wars plus any expenses accrued but not yet paid out as cash.  For example, injured veteran costs incurred in a given year do not count against that year, but are ‘saved’ for later years.  The deficit would be the equivalent of you stating your fiscal condition in any given month without factoring in your credit card, mortgage, or car loans.  This is what fell under Clinton’s last term.

2) A so-called ‘audited deficit’ number is also released by the Treasury department, but they do it with as little fanfare as possible, often by silently updating the Treasury website late in December in the hope that nobody notices. This number consists of the headline fantasy number (see #1 above) released to the general public, plus a few other things, such as the impact of spending all the ‘surplus’ Social Security funds collected, but not distributed, each year. The difference between this number and the headline number is commonly several hundred billion of dollars. 
This is easily tracked by going to the Treasury website and subtracting the current level of debt from the one of a year ago.  For instance, subtracting the value reported today from 9/9/07 gives us an increase in government debt of $681 billion, as compared to the recently reported $408 billion number.

3)  And then we have the total US deficit,
which is what would be reported if the US government had to report the increase in unfunded obligations and all other forms of deficit spending.  It is also what’s known as “the honest number,” because it represents the true state of expenditures in relation to revenues. This number is never spoken out loud by DC politicians, because the House and Senate chambers are apparently composed of a dense form of ‘anti-reality,’ which, if exposed to ‘reality,’ would result in a massive explosion. Or at least cause elected officials to lose their jobs when an angry electorate finds out how badly they’ve been managing things. Either way, the true deficit number is widely avoided in DC. The US government’s total deficit is now pegged between $53 and $99 trillion  – figures that could never be repaid.
Over the past ten years, during times of both growth and recession, this deficit number has increased by over $40 trillion dollars. So we can say this is not something that we’re likely to "grow out of," because it just keeps getting bigger and bigger, no matter what.