Debts and Deficits

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Part 2: How Bad Can It Get?

For accounting purposes, a debt can also be a deficit. In this case, a deficit is the difference between how much money you have and how much money you owe. A business that has regular debts has a deficit. This extends to governments as well.

The United States Government routinely spends more money than it brings in. To pay for the many programs offered by the various government departments, the U.S. Government routinely borrows money from banks, both in the U.S. and in other countries. This borrowing takes place on a very large scale, creating the national debt. The U.S. Government routinely has more money going out than coming in. This is a budget deficit. (The opposite of this is a budget surplus.)

Just like the debts of ordinary people and businesses, the national debt is something that the U.S. Government must pay off, including interest. The national debt has been so very large for so many years that some people wonder whether it will ever be paid off. This will certainly not be the case as long as the Government continues to have a budget deficit.

One thing that helps to maintain that high level of national debt is the complete absence of any banks' foreclosing on the U.S. Government's loans. This is certainly not the case with small loans taken out by people or businesses.

If bank officials decide that a person or business won't be able to pay back the money owed on a loan, the bank can foreclose, meaning that whatever the person or business owned as part of the original loan agreement becomes the property of the bank. Many people who lose their jobs or otherwise become unable to pay off their homes or cars find the bank that issued those loans taking possession of those homes and cars.

Banks generally don't foreclose on governments because the result would be far more harmful for the society at large than for the bank to continue to carry the loans. Governments do always pay on their loans, just not the full amount.

First page > What Is Debt? > Page 1, 2

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David White