If you ask the average person the difference between the deficit and the national debt, you’re likely to get a blank stare. While you are much smarter than the average Josephine, we’ll go over that anyway, just in case you were asleep during that session of your Econ class.
The Deficit
The deficit is the amount of money we’re spending THIS YEAR that exceeds the amount we brought in.
The national debt is the sum total of all the deficits we’ve had.
To give you a little perspective, here’s are the deficits from 8 years prior to the Great Recession to the present.
- 1999 – $125 billion surplus (Clinton)
- 2000 – $236 billion surplus (Clinton)
- 2001 – $128 billion surplus (Bush)
- 2002 – $157 billion deficit (Bush)
- 2003 – $377 billion deficit (Bush)
- 2004 – $412 billion deficit (Bush)
- 2005 – $318 billion deficit (Bush)
- 2006 – $248 billion deficit (Bush)
- 2007 – $162 billion deficit (Bush) The Great Recession begins Dec., 2007
- 2008 – $410 billion deficit (Bush)
- 2009 – $1.41 trillion deficit (Obama) The Great Recession ends Jun., 2009
- 2010 – $1.29 trillion deficit (Obama)
- 2011 – $1.30 trillion deficit (Obama)
- 2012 – $1.09 trillion deficit (Obama)
- 2013 – projected $901 billion (Unknown)
Deficit spending grew by 620% from 1999 – 2013
Let’s compare those deficits to an analogous period for the 1980 – 1981 recession (the second worst recession in our history).
- 1973 – $14.91 billion deficit
- 1974 – $ 6.14 billion deficit
- 1975 – $53.24 billion deficit
- 1976 – $73.73 billion deficit
- 1977 – $78.97 billion deficit
- 1978 – $59.19 billion deficit
- 1979 – $40.73 billion deficit
- 1980 – $73.83 billion deficit
- 1981 – $78.97 billion deficit (Reagan) Recession began Jul., 1981
- 1982 – $128 billion deficit (Reagan) Recession ended Nov., 1982
- 1983 – $207.8 billion deficit (Reagan)
- 1984 – $185.4 billion deficit (Reagan)
- 1985 – $212.3 billion deficit (Reagan)
- 1986 – $239.6 billion deficit (Reagan)
Deficit spending increased by 1,507% from 1973 – 1986.
There are two factors that make up a deficit: Revenues and expenses. During a recession, revenues drop, as businesses lay off workers and less in collected in both a corporate and personal taxes. Expenses also increase, as government spending in areas such as unemployment benefits go up.
The National Debt
From 1742 to 2010 (the last year complete data are available), we’ve had a total of about $8 trillion dollars in deficit spending. When you add interest paid on borrowing to pay that debt, it climbs to about $13.5 trillion.
Since 1900, we’ve had 31 years where our income exceeded our expenses. The other 82 years have had deficit spending.
Again, as a matter of perspective, here is the cumulative amount of the national debt for the last decade.
- 2000 – $5.628 billion (Clinton)
- 2001 – $5.769 billion (Bush)
- 2002 – $6.198 billion (Bush)
- 2003 – $6.760 billion (Bush)
- 2004 – $7.354 billion (Bush)
- 2005 – $7.905 billion (Bush)
- 2006 – $8.451 billion (Bush)
- 2007 – $8.950 billion (Bush)
- 2008 – $9.654 billion (Bush)
- 2009 – $11.88 billion (Obama)
- 2010 – $13.53 billion (Obama)
- 2011 – $14.76 billion (Obama)
All data compiled from http://www.usgovernmentspending.com/
Let’s look at our personal debt. Total US residential investment is $10,081 billion. Consumer debt is $2,725.6 billion. That’s $12,806.6 billion, and there are currently 314,123,000 of us. Each one of us holds, on average, $40,770. Some owe, including homeowners, owe far more. Renters owe far less. Few would probably have the ability to write a check and pay off all their debt, including their mortgage. Some debt, or leverage, is a good thing.
How Much Do I Owe?
Those who express outrage regarding the national debt sometimes express the debt in terms of the amount that is owed by every man, woman and child in the US. Currently, that amount is nearly $34 thousand. Again, to gain some perspective, let’s look at a couple of facts.
In 1960, the national debt was $290 billion and the population was 179.3 million. Every American owed about $1620 – $5432 in today’s dollars.
In 1970, the national debt was $380.9 billion and the population was 203.3 million. Every American owed $1873 – $4908 in today’s dollars (less than the prior decade).
In 1980, the national debt was $909 billion and the population was 248.7 million. Every American owed $3665 – $7479 in today’s dollars (+52% from the prior decade).
In 1990, the national debt was $3.206 billion and the population was 248.7 million. Every American owed $12,879 – $20,589 in today’s dollars (+115% from the prior decade).
In 2000, the national debt was $5.629 billion and the population was 281.4 million. Every American owed $20,002 – $24,980 in today’s dollars (+2% from the prior decade).
In 2010, the national debt was $10.526 billion and the population is 308.7 million. Every American owes about $43,800 (+75% from the prior decade).
Population information was obtained from http://www.census.gov/popest/archives/1990s/popclockest.txt
Debt as a Percentage of Gross Domestic Product
Realistically, the national debt will never actually be paid to zero. We’ve had debt since 1900. The way to evaluate debt is as a percentage of GDP.
- 1970 – 8.9%
- 1980 – 15.6%
- 1990 – 40%
- 2000 – 50.7%
- 2010 – 90%
Let’s put this in perspective. In a corporate structure, about the optimal amount of debt is about 33%. Here’s why. If you invest $2 million in a company with no debt and that company earns $200,000, you earn 10% on your investment. If you invest $1.34 million in a company, and have $660,000 in debt, and that company earns $200,000, you earn 15% on your investment.
Too much debt is not a good thing, and we all know very well that is true from a common sense perspective. If you earn $100,000 and your mortgage and credit card payments are $100,000, you have no money. You need to earn more AND cut your expenses. You can’t have garage sales to raise money indefinitely.
It works the same way for the government. We see the effects of immediate, draconian cuts in expenses into countries like Greece and Spain. Too many spending cuts, or reliance on spending cuts alone, result in a decrease in earnings (taxes), which slows growth, which decreases earnings further, which slows growth further. IMF Chair Christine Lagarde warned against this strategy as exacerbating the European Union problem. http://www.reuters.com/article/2012/10/11/us-imf-economy-idUSBRE89A02O20121011
A more rational approach is to both cut long term expenses and raise long term revenues by allowing the country to grow, creating new businesses and more taxpayers. In other words, spend less and raise taxes, but enact changes gradually, so not to worsen the problem.
As always, I welcome your comments and questions.
Thanks, I will definitely let you know. The nurse said that she was going to do a little on the lips. I sure don't want the trout pout.
Thanks for your advice. I'm getting more excited than nervous now.
Roadrunner - absolutely nothing drastic about it. When you first get the botox (forehead and eyes) you will see a change that will level off in a few days or one week. It looks completely natural. You CANNOT frown no matter how hard you try! Be very 
There are a couple of errors in this piece that have been corrected here http://womensfinancialplanning.blogspot.com/2012/10/a-grown-up-girls-guide-to-national-debt.html
Unfortunately, I’m not very good at editing these pieces on this site. My apologies.
Kitty – Do the deficits during the Bush years reflect the costs of the Afghan and Iraq Wars? We often hear that they were not included in the budgets but were considered under some other accounting term that did not reflect in numbers often used.
The cost of the wars was “off balance sheet” during the Bush administration. The Obama administration changed that policy.
http://newsbusters.org/blogs/tom-blumer/2012/02/15/fact-checking-ap-fact-checker-woodward-bush-did-not-keep-cost-wars-out-b Here is a source that explains the answer to your question.
So that would dramatically increase the deficit spending under Bush over and above what is shown in your numbers. Not criticizing your numbers, just making the point as to the very deep hole Obama inherited. Bush was cooking the books. Am I correct on this?
Not really. The books actually cook both ways. The effect of drawing down the cost of the wars under Obama was credited as “savings” even as the current actual current costs were included. It is not as if the previous costs were added to the Obama budget.
You lost me there. If drawing down actual costs are credited as savings, under what accounting term did the credit appear? Are actual costs included in a current budget figure? Or is there a black hole “off balance sheet” out there that contains everything having to do with the wars, which would tend to benefit Bush deficits wouldn’t it? You are saying “current costs” but what about the costs while Bush was Prez? Are they offset by savings “off balance sheet” as the drawdown occurs?
I got a page not found to the link you posted to fact check cost of wars
Sorry. Here’s an active link. See reference to supplemental spending. http://www.factcheck.org/2012/06/obamas-spending-inferno-or-not/
With respect to your previous question, the two wars were off budget. When the portion of the war spending for the current year applicable to Obama was put on budget, the decrease due to the entire draw down was also decreased from that amount.
I also read Factcheck and get the emails from them. It is interesting that the graph on collections has remained some what constant. Even though our population has gone up.
You may know this or where I might find the info: Is there a chart that shows a percent per person in taxes paid and how that has risen or not during the total of 1914 until now? One that would include man, woman and child? That would be interesting to know as candidates at all levels seem to differ about who pays what.
I also have , since 1982, watched the rise in the debt and spending as my gauges. The budget is really a political way of fooling the voter into thinking one party or the other is the best one. I say we have given the both way too many chances. It is time for new thinking from some other ,always excluded party. The control the main two parties have over elections prevents any real change.
We could go a long way in saving this spending by following T Boone Pickens energy plan. And get totally out of the middle east. I do mean 100%, no one on any kind of government pay out at all. If we could be energy exporter we would regain our powerful place in the world and the middle east could be as backward as they want.
I am way too sick of our blood for oil ways. The young people in this country should be protesting that but no draft so no protest. They would be well served by energy jobs in this country instead of mind and body killing wars.
Did you catch the Fareed Zacharia report on energy Sunday? (CNN)
I did see Fareed’s special on energy. What did you think of it?
I really liked what was said. In my dreams I would live in that energy saver’s house. What I liked the most was that is came from all sides. Finding, producing new cleaner energy and finding ways to do much more with much less energy. And some thing not talked about too.
Also,T Boone Pickens is right about powering our cars and trucks with natural gas.
Nitrogen has real promise.
We just have to slow the oil lobby long enough to develope these. It is very exciting for new energy.
My son is a chemical engineer working in the petroleum business in Texas. He tells me there is no substitute for oil in chemicals.
We will never escape the need for oil but middle eastern oil will go away. Both by finding other options and conservation.
It seems, here in canada, BO (big oil) essentially funds the government coffers. Hence, manufacturing job which feed the middle class are gone, gone overseas. We do not even have our passports made in Canada, they are “outsourced”. That sort of strangulation on the economy has stunted much growth in other economic sectors. Just look at the stock market readings, they lead with the price of oil — when did that happen? North America needs more manufacturing as it feeds families. Total reliance (as we seems to be heading) is dangerous and a blood sport. No one wins except the CEO’s of BO. When did that happen? How is that trend thwarted?
As long as we pay people who are not working (retired from the company people) and provide medical etc we will price ourselved out of the market. Labor and property cost are so much higher here the products produced would never sell. Even if we tried they would still be producing at a much cheaper price and equal quality.
To produce here we would have to use strong technology with few people. It would never produce the big number jobs like the long gone old days.
Where we agree is we do need to make things that are very important here. Non needs products can come from anywhere without problems.
Growing food should be a top job but most don’t think so. There are too many people on earth. Food will be the most important product in this 21st century. Water will be another need we must learn to use less of or get it from the oceans.
Energy does give you big oil problems but it wll be important. Without energy you have nothing. Everything you do is about energy. Food is energy for humans.
I agree the bulging population is a problem. Safe production of food is an issue. Not handling economics for women is a problem. The answer to that is, apparently, have more children. The main source of over production of children is Africa — 7 each. That too is unsustainable. Where oh where to start,
I am not a numbers person at all, so this makes my brain hurt, bad. It also depresses me terribly and makes me very sad for my children and grandchildren. What can the average person do about it, besides simply vote, which seems so futile? Talking about it doesn’t make it go away, or change it. It makes me crazy that someone else is racking up this incredible debt for myself and my family. And what happens when it all collapses? What are we to do at that point? Because that is the obvious outcome here.
Hi, Paula Ellen, and thanks for your comment. You have a beautiful name.
If I may be the contrarian, I spent the vast majority of my life as a banker, and helped provide for the retirement and college savings for the children of many clients. The truth is that I made the most money when sentiment was low, people were sure that the end was near, and all would surely be lost. That happened when I began my career in the 1970s. The stock market ground down a painful 50%, everyone hated their banker, no one wanted to buy stock.
There was the time during the 80s when the Japanese were going to take over the world, and the US was never going to come back. Then, there was the dot com bubble in the 90s. And the housing crisis. Every one of those times, I bought heavily as everyone was selling. So, in this context, may I add that the US has had this level of debt before.
As Churchill said, Americans will do the right thing. After we’ve done everything else.
Thanks again for your comments.
There seemed to be an attitude that was much more pro USA even with the antiwar talk of the day. We are a different people today. A very different mixture of sexes, races, and wants. No one is put off or ashamed of being on government handouts. We feel we are entitled to things like health insurance and retirement that did not exist at the time Churchill utter those words.
Maybe we will come out of this but there really is a different power moving the world today.
It will be an adjustment. Maybe time is not different or maybe it is. Japan has the graying problem we are just come into.
China is not going to avoid that either. They have had a one child limit long enough to make the age and size of the young verses old big. They may solve it the way the solved the drug problem … a bullet to the head.
The analogy is “who will drink the last glass of water”, or who will turn oil into water”?
Hi idosew and Darcy09, and thanks for your replies. I’ll leave you with a quote from the late, great investor Barton Biggs, who was responding to a young man who opined that the dot com bubble was different from all the other financial challenges of the past, and that he (Biggs) had an antiquated view of the circumstances.
To this Biggs replied, “It’s not different this time, son. It’s never different this time.”
Whether you agree with his assessment or not, he certainly put things into perspective.
What do you think of the book “this time is different”? The one by Reinhart and Rogoff who , I think did the research.
Hi, idosew, and thank you for your question. Overall, I think that Reinhart and Rogoff did an admirable job of assembling data, a significant enough amount to put any short term analysis to shame. The problem I have is their analysis, particularly the technical papers in Part V, which analyses the sub-prime issue.
The first argues that the sub-prime crisis was not appreciably different from the five other crises associated with length recessions (Spain 1977, Norway 1987, Finland/Sweden 1991 and Japan 1992) except that it happened in the US from which it could spread around the world. Note that this conclusion would seem be be prescient, EXCEPT that the research appeared nine months before the recession began.
The second paper written in 2009 supports the case that banking collapses take a very long time to work out. Other scholars of the Great Depression, including Bernanke, agree with this premise, which is “the bible” for most central banks. These data show only that a preponderance of relevant data may certainly have foretold current circumstances.
None of the truly relevant questions, i.e., the debts and currency of the US, are addressed. I won’t attribute why the authors did not address these subjects, other than to say that their data, massive though it may be, failed to produce conclusions relevant to the precise current circumstances. To that extent, it’s always different this time.
Interesting point of view. One with which I can not disagree. “The future is not ours to know ” and “Only time will tell”. I had heard many thoughts but I think only a few are worth a second thought.
As to my best guess on the future for the USA: There has never been a country like ours. We are so different that we cannot be compared in the apples to oranges method.
Energy is our future. The middle east will fade as will our need to police it. The T. Boone Pickins view is catching. I have caught it.
My thinking has grown much more positive by listening to him.
Do you still invest for others?
I’m a consultant now, idosew. Basically, I review portfolios for clients who have advisors, and provide a second opinion. Or in some cases, a third opinion. I actively manage only money for me and my family.
Ladies, I think this is an extraordinary (and entertaining) talk about debt and deficits. http://www.upworthy.com/a-6-minute-video-that-explains-the-us-economy-better-than-the-presidential-candi?g=2&c=upw1
I watched it. He seemed to think the sale of our debt will never be threatened. I do hope he is right.
Two years ago I was visiting Hoover Dam. A family from Sweden asked us out of the blue what we are going to do about our debt. I said to him as long as nobody stops buying it the party will go on. He just stood there looking at me.
That made me think about what others are really thinking. I remember very well what happened in the 1970s. It wiped out a lot of savings. That is my greatest fear.
The fed has printed so much money that only this bad economy is keeping it under control.
Spain has a 26% unemplotment rate. They have decided not to take any action since their rate are down to a possible to do rate. Watching what that has happen in Europe is scary since the debt to GDP ratio here is worse than some of them.
Germany does not want inflation like the 1930s and a failed mark. They have long memories. I lived there for a while. Germans think about things more seriously than we do.
They are different from us. They do know what a failed mark is like. The dollar has not yet failed.
About investing, there is always money to be made somewhere. I just want to keep enough “gold” to pay the border guard.
Hi idosew. I agree with your “long view,” and also think it wise to listen to those outside our borders. Wise words.
As to gold, I no longer see it as the “hedge” it once was. It seems like a currency play. For example, when the dollar strengthens, it dips (as it did today). Is that how you regard your holdings?
I don’t know about you, but I’ll certainly be glad when this election is over. It seems like it’s been going on for decades. I can’t imagine how crazy people in Ohio (and the other “swing” states) must be, with all the ads, phone calls, etc. In a few days, things will be decided one way or the other, and that will be quite a relief, no?
Thanks again for your missive. You’re certainly a bright, thoughtful woman, and it’s always a pleasure chatting with you.
I do own some gold but it is a small amount. Less than 10% of my investments. Keeping enough to bribe the border guard is something my father used to say when I was growing up. I learned how to handle money from him. I do not think there is enough gold, at least on the surface of the earth, to be a real money. Paper money is fiat but as long as we believe, it will work. Even those who do default completely still go back to it.
I know few think this but to me stocks are a hedge against inflation. Back in the early part of 1999 I heard a dotcom guy say “we have declared a moratorium on profit” to Lou Dobbs on CNN. I cashed in everything the very next day. That one bit of info saved any loss in the early 2000 crash. Six months later I was picking from the bones.
I got out again when my lawyer son-in-law told me the housing market was going to crash in Oct 2007. He did closings for country wide. I have found fewer bones to pick since then. Having never used investment help it is up to me to listen very carefully to the world.
Well, it sounds like you’ve made incredible decisions with your finances, idosew. That’s a story worth telling. So many of my clients were women who gave their children paid college educations, gave their ailing parents help with medical bills, etc., and find themselves with little for themselves. You’re the poster girl for the other side, and I encourage you to share your experience and knowledge.
And I LOVE your father’s quote. Priceless.
I, too, gave my 3 kids a paid completely college education. I did not save for it but was able to just write the check. My parents were wealthy so they never needed help. My 90 year old mother easily affords her 24-7 live in care she has needed for two years so far. She will always be able to do so.
My fear of loosing what I have is so great that I react when I hear something that scares me. There is no luck or anything braggable about it.
Another lesson from my father came as a 7 year old. I ordered some seeds to sell from the back pages of my “Calling all Girls” magazine. Could not sell them. Put them in the ground , watched them grow, then got a lawyer letter. They said they would arrest me if I did not pay. My father thought it was time to put fear of bad money use in my head. He made quite a production of what it meant then said he would “bail me out”. That this would be worked off washing the car and from my small yard raking business. Never again did I ever waste a dime.
I have never earned lots of money but have lived a sort of odd life. I am a photographer. In the part of the world I live in it is not a get rich program, quick or slow.
Nothing I have done would ever be worth sharing. It takes so little money for my life style there is always money left over. I sew my own clothes, grow my own food, and cook everything from scratch. Not many would do what I have done to get where I am. Best of all I picked a good man to marry.
It was so strange listening to “pollsters”. Canadian seemed determined Obama would get in (no questions); American pollsters were saying tight race.
What made those two ideas run side by side on the same issue, different borders?? Any ideas welcome.
Hi Darcy, and thank you for your question. We have two different types of polling in the US: one, is punditry; and the other, scientific. With our 24 hour news cycle, we have “talking heads” that say anything – sometimes the more outrageous the better – to attract ratings. Case in point: Dick Morris on Fox News predicting a Romney win “by a landslide.” Base on what? Based on the fact that Dick Morris thinks so.
Then, we have more scientific polls, and the best, a “poll of polls” promulgated by a statistician/mathematician that correctly predicted the outcome for months previous to the election. http://fivethirtyeight.blogs.nytimes.com/ This is a math based model that correctly predicted 49/50 states in the election four years ago. The difference? He is kind of dorky, not “newsy”, and did not care who won. He followed the data.
His book, called “Signal and Noise” sums it up best. His was the signal – a math-based analysis of polling. The other is noise.
Americans love noise.
One of my favorite things to do is lie to poll takers. It gives me great pleasure to say anything I want to them. If they don’t want this they should not call so much.
Thank you for the explanation. I never saw it as close. Never saw Romney as popular and wondered.
My friend is very pro-American, I think she spends her business life in Virginia, Seattle and nothing below, say, the “mid-line”. Her info to me is that the Country is doing well, unemployment very nearly does not exist, and similar expressions.
I think she would contradict the info that CA loses 2500 people a month? or week? I just remember being shocked at the number. Is she really that well informed? That information is not what I hear on the late night public radio programs, nor on my beloved CBC.
Hi Darcy. Unemployment is high (about 8%), but lingering unemployment is common after financial recessions. What I mean by that is recessions that are caused by financial imbalances (like the Great Depression) rather than the predicable ebb and flow of the economy.
The states hardest hit by the great recession, Florida, Arizona, California and Nevada, were most effected by unemployment, as the economy absorbed the glut of housing built during the “boom.”
The US is, and has always been during my lifetime, very evenly split between two parties, and has remained center/right for as long as I can remember. So, the popular votes nearly always look close. Because we elect our president through an electoral college, though, most elections don’t look as close when measured in those terms.