My financial advisor, Wally McMakin with McMakin Financial, sent out a great email this morning with the difference between 'debt' and 'deficit'.  Here's what he had to say:

In this age of a stimulus spending and bailouts, 'debt' and 'deficit' are often used to describe the federal government's financial situation.  Many people use these words interchangeably, yet they have significantly different meanings.  

Budget deficit:  When the federal government spends more money in a fiscal year than it collects in tax revenue, it creates a budget 'deficit'.  In the rare instances when the government expenditures are less than tax revenues, the result is a budget 'surplus'.  Budget deficits have been the norm in recent decades.  For example, in the past 28 friscal years (1982 - 2010) , there were only 4 years in which the federal government ran budget surpluses.


National debt:  How can the government spend more than it collects?  By borrowing money.  The total amount owed by the federal government is called the 'national debt'.  Because the federal government guarantees the timely payment of principal and interest, many individuals, corporations, state, and local governments, foreign governments, and others are willing to lend their money.  Although Treasure Securities pay relatively low interest rates, they tend to appeal to investors seeking lower risk.  There's also quite a big of borrowing between federal agencies.  For example, Congress has long been in the habit of borrowing excess Social Security revenues.  As a result, the national debt is divided into two categories:  debt held by the public and intergovernmental holdings. As you can imagine, there's considerable debate over how long the government can keep borrowing to financing spending.  Regardless of how you feel about government spending, you might benefit from understanding the terminology.

Thanks Wally for that enlightenment!

Reading this just makes me think of all our home buyers qualifying for a home loan.  Our federal government couldn't qualify for a home with all the deficit the country has!!  I also equate deficit with debt - you spend more than you make, it's a deficit.  You create debt by owing money.  The less you owe, the more of your income you keep, the wealthier you are!!  It's something to think about as we watch the politicians jockeying for their position before tomorrow!!  Pat