DEFICIT v. DEBT

A few nights ago, I had C-SPAN on for background while I was concentrating on something else. The discussion on the floor of the House was about raising the debt ceiling. I got tennis neck from whipping my head around when I heard one of the House members, a Democrat, (I apologize, I did not get his name) say that raising the debt ceiling will not add to the deficit.

Of course raising the debt ceiling won’t have a negative affect on the deficit. That statement definitely got my attention. The inverse is true, but not the statement he made.

I didn’t know if it was a legitimate mistake or if he really thought he was making a remarkable point. If the former is true, he needs to take Econ. 101 before he makes an idiot of himself again. If the latter was his intent, it should offend every person who does understand the relationship between debt and deficit. He obviously believes the rest of us should wear pointy little hats with DUNCE written across the front.

Just as my senses returned, another representative was given the opportunity to speak. I’ll be damned if he didn’t repeat the very same drivel. I then realized this was a talking point written and distributed by someone thinking he or she had all the intelligence and the rest of us had none.

Many people who are not familiar with the terms may have the two terms muddled. Certainly, statements like the one above will do that to an ordinary mind. The differences are simple, however.

Deficit is the negative difference between income and expenditures. E.g. Your income is $100 and you spend $110. Debt, on the other hand, is the result of overspending your income or the accumulation of deficit spending. E.g. If you pay the $100 you have and defer payment on the $10, you have a debt of $10. If you do that two months in a row, you have a debt of $20 plus interest on the first $10.

Another example: You have a credit card with a $10,000 spending limit. Your charges to date are $9,500. That is your debt. The interest on the debt is 18%. If you make the minimum payment required each month, you pay only the interest on the debt and 1% of the principal (aka the amount owing, balance, debt). Your payment this month is $237.50. Of that payment, the interest is $142.50 and the debt reduction is $95.

Now you want to buy a 60” H.D. flat screen TV. The cost of that toy is $2,500. You don’t have the cash to pay for it and you don’t have enough credit left to buy it so you call Bank of America and ask for a credit increase (you want your debt ceiling raised). Because your history shows that you regularly make the minimum required payment, BofA grants your request and you can make that purchase.

With that purchase, you just increased your deficit spending and your debt by $2,500 because you could not afford it.

CONGRATULATIONS AMERICA! The duly elected idiots in Congress granted themselves a $512 billion debt ceiling raise last week so they can continue to spend beyond your means. This move will allow the president a few more multi-million dollar vacations at your expense before he leaves office and more distribution of your wealth to Democratic donors and voters. It may mean a small raise in your taxes, but that’s okay because you are a wealthy, greedy and productive member of society. You need to share with those people who have less because the “government” doesn’t provide them with enough.

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