Deficit Spending and Currency Creation

The budget deficit is the amount of money the government is short, or another way of looking at it is that it’s the amount they spend that they don’t actually have.

The official budget deficit is projected to be over 1.7 trillion dollars for 2009 for the US government. Wrap your head around that! The government is spending 1.7 trillion ($1,700,000,000,000) more than it earns and this doesn’t take into account unfunded liabilities (things they owe money for and don’t have the reserves to pay) or bailouts.

The funniest thing about the projected deficit is that it also says that the government will owe 3 trillion more by the end of the year. How can you be under 1.7 trillion but actually be minus  trillion?

Mike Maloney defines the ‘true budget deficit’ as the overall increase in debt as states that the government seems to always go further into debt than its projections.

It just astounds me as I learn more and more about economics how irresponsible governments are at money management. A country should be managed like a business. Keep expenses below income and you stay in business. Most governments seem to keep expenses above income and issue bonds (pay interest on money loaned to them from others) to stay afloat, until of course, it either goes bankrupt or the currency loses all value because they print so much of it.

Base money is all the money in circulation plus the deposits that all commercial banks have at the Federal Reserve, which is redeemable in paper money.

By looking at this chart you can see that base money has exploded during the last century.