The phrase, “budget deficit,” is normally applied to situations where, at the end of a calendar or fiscal year, a public entity turns out to have spent more money than it has been able to collect in taxes, fees, and other impositions. Individuals, businesses, not-for-profit entities, and public bodies all operate under budgets too, of course. But when a business has a “budget deficit” the phrase means that it has experienced a “loss.” Individuals “overspend.” When contractors spend more than their contracts provide, they have “overruns.”
Public sector deficits are of substantial interest to the public, not least to the commercial sector. Deficits are invariably covered by borrowing. When governments borrow money they compete for available national savings with the commercial institutions that also wish to borrow money to finance their operations. The Federal Government, particularly, enjoys an advantage because its treasury bills are of the highest quality and are preferred to any other kinds of bonds. A shortage of available money hampers economic activity.
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The U.S. Budget Deficit
Based on the estimates of the Congressional Budget Office, the FY 2005 budget deficit was $331 billion, down from $412 billion in FY 2004. In the 40-year span from FY 1965 to FY 2005, the Federal Government has had a budget surplus only five times, in FY 1969 and in the period FY 1998-2001 inclusive. In all other years, the government ran in the red. The FY 2004 deficit was the highest ever in U.S. history.
Individuals And Households
According to the Bureau of Economic Analysis (BEA), an element of the U.S. Department of Commerce, the personal savings rate in FY 2004 stood at 1.8 percent (savings as a percent of disposable income); this rate stood at 7.7 percent in FY 1992 and has been on a steady decline in the intervening years. Household data indicate a slightly lower rate, 1.6 percent in FY 2004 and 7.5 percent in FY 1992. In FY 2005, according to the BEA, the savings rate had turned negative (-0.2 percent in November, but it had been as low as –3.4 percent in August), suggesting that individuals were experiencing a “budget deficit” too.