Fiscal Deficit

You must have heard in the news that, “Growing Fiscal Deficit of USA is a great concern for its economy.” So What is Fiscal Deficit & How it works?

What is Fiscal Deficit?

Investopedia: When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.

Wikipedia: A budget deficit occurs when an entity spends more money than it takes in. The opposite of a budget deficit is a budget surplus. Debt is essentially an accumulated flow of deficits. In other words, a deficit is a flow, and debt is a stock.

According to some economists, fiscal deficit is a positive economic event because it help countries climb out of economic recession. While according to some other economists, it is a bad thing.

An accumulated deficit over several years (or centuries) is referred to as the government debt. Government debt is usually financed by borrowing, although if a government's debt is denominated in its own currency it can print new currency to pay debts.

Right now US Government is doing the same thing. It is truly printing money out of nothing. And that’s why economists around the world are worried. Because printing money like anything can cause severe inflation and ultimately bring downs the value of money.

Governments usually must pay interest on what they have borrowed. Governments reduce debt when their revenues exceed their current expenditures and interest costs. Otherwise, government debt increases, requiring the issue of new government bonds or other means of financing debt, such as asset sales.