U.S. Federal Budget Deficit

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Economics for Strategic Decisions
U.S. Federal Budget Deficit

Introduction and History
The U.S. Federal Budget deficit is the fiscal year difference between what the United States Government takes in from taxes and other revenues, called receipts, and the amount of money the government spends, called outlays. The items included in the deficit are considered either on budget or off budget. Generally, on-budget outlays tend to exceed on-budget receipts, while off-budget receipts tend to exceed off-budget outlays.The United States public debt, commonly called the national debt, gross federal debt or U.S. government debt, grows as the U.S. Federal Budget remains in deficit and is the amount of money owed by the United States government to creditors who hold US securities like T-bills, notes and bonds. This does not include the money owed by states, corporations, or individuals, nor does it include the money owed to Social Security beneficiaries in the future. As of April 18th, 2006, the total U.S. government debt was $8.395724 trillion. The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew and then contracted to nearly zero in late 1834. On January 1, 1835, the national debt was only $33,733.05, but it quickly grew into the millions again.The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million dollars in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in World War I.The buildup and involvement in World War II brought the debt up another order of magnitude from $43 billion in 1940 to $260 billion following the war. After this period, the debt's growth closely matched the rate of inflation until the 1980s, when it again began to skyrocket.The public debt briefly started to go down in 2000 when the country had a substantial budget surplus, but began growing again after budget deficits grew large beginning in 2002. At any given time, at least in recent decades, there is a debt ceiling in effect. If the debt grows to this ceiling level, many branches of government are shut down or only provide extremely limited service. However, the ceiling is routinely raised by passage of new laws by the United States Congress every year or so. The most recent example of this occurred in March of 2006, when the U.S. Congress agreed to raise the National Debt Ceiling to just under $9.000 trillion.Viewed alternately as a percentage of the GDP, the national debt rose sharply during World War II, reaching about 122% of GDP in 1946. As soon as the conflict ended, the debt began declining, reaching a postwar low of 32.6% of GDP in 1981. The debt then started rising again and peaked at 67.3% of GDP in 1996. It then dropped to 57.4% of GDP by 2001. The debt of the United States is on par with the debt of other developed countries, such as Germany and France. CausesOpinions on the causes of the U.S. Federal Budget deficit vary greatly. The three that I have chosen to highlight are a decrease in the private saving rates of Americans, productivity growth and a slump in foreign domestic demand. Proponents of a decline in saving rate are also mainly supporters of the belief in American over-indulgence. Since the mid-1990s, the personal saving rate has declined from roughly 5 percent of disposable income to less than 2 percent, and gross private saving (which includes corporate saving) has edged down from about 16 percent of GDP to less than 15 percent.

The decline in saving rates could reflect a structural shift in...
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