There exists a difference between federal government’s debt and deficit and most people tend to confuse these two. The differences are outlined as below. Federal government’s deficit refers to a situation whereby any government spending surpasses its income that comes from tax revenues collected from the citizens and other sources by any amount. Government deficit has some effects in a country’s economy. For example, it causes inflation which can be described to as the increase of the amount of money in circulation resulting to high pricing of goods. Federal government’s debt on the other hand refers to a given amount of money that a government owes its creditors (Geer, John 156). This entails borrowing the money. The government can achieve this by issuing its securities to individuals, businesses that buy the government securities that include selling of bonds and securities.
A government reaches to a point of borrowing some amount of money when unable to finance its day to day activities. The debts can be classified according to time of the debt maturity, for example, treasury bills, notes and bonds. The other classification can be with regard to the type of government issuing the debt, for example, state debt, federal debt and local debt, The last classification is by the spring of the revenue the government will use when repaying the debt, for example the revenue bonds that entails the levies imposed on the citizens of a given country (Folsom, W, and Rick 113). To avoid deficits, governments should be able to propose budgets prior to its spending. They are forecasts of what a government anticipates to use in a given period usually one year. This makes sure that the spending is kept under check to avoid overboard expenses that may not be termed as necessities
The treasury comes in here as it is the one that finances the federal government’s debt. This is a result of it being entrusted with the responsibility of collection of taxes that constitute revenue which in return is forwarded to the government for it to be in a position to be able to carry its everyday activities (Ogilvie 264). Treasury projects a country’s budget thus placed in a better position to know the much needed, therefore, whenever any income is collected, it is able to finance the federal government’s debt thus keeping the debt margin as low as possible. The treasury is entrusted with paying of the bills that constitute part of the government’s federal debt. It handles all the processes concerned with the public debt thus the responsibility of financing the federal debt.
The government’s federal deficit has started to reduce over the years as more or some emphasis is put on sticking to the budget already projected. The governments have become keen in keeping a close check on the amounts budgeted for and the actual amounts being spent hence keeping the amounts as close as possible to each other thus leading to a reduction in the federal deficits. In return, this results to maintaining a balance between the government’s spending and revenue collected by the treasury mostly from taxes (Ogilvie 106). However, government’s federal debt tend to increase as the years go by more than the federal debt although it is regarded as a factor that speeds the process of it contributing to a country’s economic growth through sale of government securities. This is because it keeps the government on its toes in making repayments of its debts when they become due.
Work cited:
Ogilvie, J. Treasury Management: Tools and Techniques for Countering Financial Risks. London: Kogan
Page, 1999. Print.
Folsom, W D, and Rick Boulware. Encyclopedia of American Business. New York: Facts On File, 2004.
Internet resource.
Geer, John G, Wendy J. Schiller, and Jeffrey A. Segal. Gateways to Democracy: An Introduction to
American Government. Boston, MA: Wadsworth/Cengage Learning, 2014. Print.
