Question

Define and discuss the Federal Debt and the Budget deficit.  

Answer 1

A budget deficit occurs when the expenditure of a country, business, or individual exceeds the revenue they receive over a specific period usually measured as a year. It's called deficit spending when spending exceeds income or revenue. National debt on a government-level is the sum of the deficit of each year. It would be their total debt to an organization or entity. The U.S. Treasury must sell bonds, bills, and notes from the Treasury to raise the money to cover the deficit and fund regular operations. This kind of funding is called public debt since such bonds are sold to the general public. Treasury debt is considered one of the world's best investments as such debt securities have US government protection.

The government frequently lends money to itself, in addition to the public debt. This intragovernmental debt takes the form of securities from the Government Account Collection. Most of those funds come from the Trust Fund for Social Security. That happened in the past when payroll taxes provided more than sufficient income to cover all Social Security benefits, and the pot of funds increased. That's because there were more working baby boomers than there were retirees who took insurance.

National debt would have a three major effect on the budget deficit. Firstly, each year the debt gives a clearer indicator of the true deficit. You can gage the deficit more precisely by comparing the debt of each year with the debt of the previous year. That's because, as stated in the federal budget each year, the debt does not include any of the amount owed to the Social Security Trust Fund lent through the use of intragovernmental funds through the issuance of securities from the Government Account Collection. That amount owed is called off-budget.

In the long run, the debt reduces tax revenues, thus further increasing the deficit. As the debt continues to grow, creditors are worried about how the U.S. government will pay back any funds that it owes. Over time , investors will argue that if they purchase Treasury debt products the deficit raises their risk. They could need higher interest rates to cover any perceived risks that would increase. The rise in those rates could dampen economic growth