Article Archive Contact Me Photography Linked In About Me

What's this all about?

I'm interested in and write about a wide variety of topics - economics, psychology, marketing, music, etc. I prefer writing long articles to short posts and don't update very often.

Article Archive | Contact Me.

More of me: Photography; Twitter; Facebook; LinkedIn

Recent Activity

Popular Pages




The National Budget, Debt & Deficit

"Clinton balanced the budget." "The national debt is at an all time high" (and so is the deficit). What does this all mean? I found some historical information and plugged the numbers into Excel and generated these charts.


Table of Contents

  1. General Information
  2. National Budget
  3. The National Debt
  4. The National Debt and the Consumer Price Index
  5. The National Debt and the Gross Domestic Product
  6. Foreign Debt (added December 8, 2004)
  7. The Gold Standard
  8. Raw Numbers
  9. Sources of Information & Links

Major update- June 2009, click here to go there now

I also wrote an article on The U.S. Trade Deficit that should be read alongside this one for a more complete picture of our place in the world.

1. General Information

Money for debt is raised by the Treasury, and limited by Congress. Each time the limit is reached, Congress either has to approve of a new debt ceiling, or close / limit branches of government to ensure that the United States can meet it's debt obligation and repay it's debts.

This is part of the checks and balances built in to the Constitution. In practice, Congress has almost never in recent history denied an increase (with an incident in 1995 being a notable exception).

The current US Debt is close to 7.4 Trillion dollars. In November of 2004, Congress will vote on whether or not to increase the debt ceiling. This vote was pushed back from October to avoid it becoming an election issue.

U.S. Treasury - FAQs: National Debt

The total public debt is largely a legacy of war, economic recession, and inflation. It represents the accumulated deficits in the Government's budgets over the years. The United States first got into debt in 1790 when it assumed the Revolutionary war debts of the Continental Congress. At the end of 1790, the gross public debt was approximately $75 million. For a brief period in the mid-1830's the public debt was virtually zero. At the start of World War I in 1916, the public debt was $1 billion. It then rose to a peak of $26 billion in 1919 to finance the war. The debt declined for the next decade. During the Great Depression of the 1930's, however, the debt increased from $16 billion to $42 billion. During the Second World War the public debt rose sharply to a peak of $279 billion in 1946. From its postwar low in 1949, the outstanding public debt grew gradually for nearly the next two decades. Then, beginning at the time of the Vietnam War in the mid-1960's, the rate of the debt's increase accelerated sharply.

There are three ways of measuring government spending. One is simply to look at the actual dollars, but this doesn't take into account inflation (the how much more things costs today than yesterday), or the economy as a whole (all of the goods and services produced in the country, GDP).

So I've provided 3 graphs for the budget and debt. The first is in "nominal dollars" (not inflation adjusted) the second is in "real dollars" (inflation adjusted), and the third is as a percentage of the GDP, or Gross Domestic Product.

Any numbers beyond 2003 are projections by the US Government.

2. National Budget

Receipts, Outlays, Surplus and Deficit in Current Dollars (amounts in millions)

This chart represents is income and expenses of the US Government from 1913 to 2009.

Receipts, Outlays, Surplus and Deficit in Constant (FY 2000) Dollars (amounts in millions)

This is the same graph as above, but takes into acount inflation. In the previous graph you saw that the government was spending more money every year, but you couldn't tell whether or not it was just keeping pace with inflation. Here you can see that the actual value of the income and expenses of the US Government has increased.

Receipts, Outlays, Suprlus and Deficit as a % of GDP

So while in the previous graph you saw that the government was receiving more and spending more in constant dollars, here you can see that in terms of the economy as a whole, spending has been more-or-less constant since WWII.

Receipts by Source

This chart is not adjusted for inflation.

3. The National Debt (Nominal Dollars)

The National Debt, 1940 - 2009

The debt reached a peak during WWII (More on this later), but the government managed to pay a lot of it off. The amount of debt has increased every year since 1960, and starting in the mid 70's, grew at an astonishing rate.

Per-Capita Debt, 1950 - Present

Population growth was pretty steady. We had 152,271,417 people in 1950, and we have 294,676,169 today. The per-capita debt, then, not surprisingly looks pretty much like the other chart. Whenever the debt levels out, there should be a sleight downward pull as the population increase and the debt level stays the same.

Annual New Debt, 1941 - Present

This was a pretty simple calculation (this year - last year) . It shows how much new debt is created each year. This isn't the same as deficit (income - expenses), but the two numbers are closely related. This number gets added to the debt each year.

In fact, let's take a closer look at the 1980 - 2004 period.

Annual New Debt, 1980 - Present

Now this paints an interesting picture. Just look at the peak spending under Bush Sr. 431,989,899,919.78, and the least spending under Clinton, 17,907,308,271.43. That's 4%, or a 1 to 24 ratio.

I decided to compare this with Employment for the same period to see if any correlation can be made.

Percent of the Civilian Labor Force Employed, 1980 - 2003

While it may be tempting to think government deficit spending influences employment, the opposite is likely true - the more people who are employed, the more revenue the government gets through taxes.

Numbers on the left are %.

4. National Debt and the Consumer Price Index (Real Dollars)

The Consumer Price Index measures inflation. It tracks the price of goods (bread, milk, etc.) over time. This particular chart uses 1967 as it's base year (100 points). This is a sort of cost-of-living index. Looking at this chart, you can infer that you need to make around 5.5 times more money now than you did in 1967 to live the same type of lifestyle.

National Debt, Adjusted for Inflation

First I calculated the Consumer Price Index to use 1950 as it's base year. Then, using the Consumer Price Index (CPI) I calculated the national debt to take into account inflation (Debt/CPI).

In 1950's dollars, our debt is currently $887,445,036,515.72 or 887 billion dollars, which is 3.45 times the size of the debt in 1950.

Here's just the inflation-adjusted debt from 1950 - 2003. This graph paints a very interesting picture about the past few administrations.

Here's another version from http://www.brillig.com/debt_clock/

New Debt, Annually 1950 - 2003, Adjusted for Inflation

Using the same techniques I just mentioned, this is the new debt each year.

These are 1950's dollars.

5. National Debt and the Gross Domestic Product

Gross Domestic Product, or GDP is a measure of all of the goods and services produced within the United States. It differs from the Consumer Price Index in that this measures what we produce (and we can infer, consume), versus the cost of living. So while everyone can have a flat screen TV and an SUV (high GDP), the Consumer Price Index is the cost of living - bread, milk, and so on.

Gross Domestic Product, 1930 - 2003

To put the whole debt thing in perspective, here's the Gross Domestic Product (GDP) for the USA from 1930 to the present. Luckily, our growth actually has been a "hockey stick" and looking at this graph, the debt starts to seem somewhat more rational. There's simply more money floating around.

Debt as a % of GDP 1940-2004

In 1946 The debt hit 121.7% of the GDP due to WWII, it's currently (as of 2003) at 62.4%.

The National Debt as a Percent of Gross Domestic Product, 1791-1998

From the Joint Economic Committee Study "Budget Surpluses, Deficits and Government Spending" in 1998

Federal Tax and Spending as a % of GDP, 1990-98

Also from the Joint Economic Committee Study "Budget Surpluses, Deficits and Government Spending" in 1998. Contrast this with the first graph on this page.

6. Foreign Debt

According to the CIA World Factbook, the United States has $ 1,400,000,000,000 in "external debt," which is defined as the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services. With a total debt of $7,535,629,022,968.30 (as of 3:50 AM December 8, 2004), the external debt is 18.578% of the total debt, and 13.486% of the GDP.

The vast majority (more than 80%) of the government's debt is to it's own residents. On the other hand, nearly 20% of the debt is repayable in foreign currency, so a declining dollar could effectively raise interest rates for this debt. Still, it answers the question "why would someone want to loan money to a nation whose currency is declining." It simply doesn't matter because we'll repay you in your currency.

 

7. The Gold Standard

The United States went off the Gold Standard in the late 60's under the Nixon administration (it was set at $35 per ounce before then). I thought a comparison of the debt to the price of gold might be interesting.

Here then is a comparison of the debt to the price of Gold.

You can see that the price of Gold skyrocketed after we went off of the gold standard. Since the price of Gold is somewhat irrational, a comparison to the debt will have bizarre fluctuations as they both move sometimes in the same direction, sometimes in opposite directions.

With these caveats, here's...

The Debt in Ounce of Gold (Debt / $ per Ounce of Gold)

8. Raw Numbers

I've provided the raw numbers here for your convenience, so you can do some number crunching of your own. See below for the sources of these numbers.


Sources of Information

Other Interesting Links


page first created on Thursday, November 04, 2004


© Mark Wieczorek