Government's Budget Deficit

Ideally, you want your government to spend only what it collects in revenue (or less), usually from taxes. Money comes in, then it gets spent on the services governments provide. That situation is known as a balanced budget.

However, that doesn't always happen. On the federal level, that (almost) never happens. Instead, money comes in from taxes, then more money gets spent on services, then the government borrows money to pay for the additional spending. That situation is known as a budget deficit.

(Theoretically, the government could also bring in more money than it spends. That circumstance would be known as a budget surplus. But who are we kidding? We might as well start talking about unicorn races or elf picnics.)

The government closes the gap in a budget deficit by selling bonds. For the U.S. government, these bonds are known as Treasuries. It's essentially the same as you borrowing $100 from a friend if you're short on rent for a particular month. Except that in the government's case, we're talking about trillions of dollars to make ends meet.

One key distinction should be made between the government's deficit and its debt. The deficit is the shortfall in a particular budget. So the U.S. government could have a deficit of $780 billion in 2018. The government's debt is the amount it has to borrow to make up for the deficit.

So to pay for the government's deficit of $780 billion, it increased its debt by $780 billion. The debt, unless paid off, keeps getting bigger. It's a running total...up to $22 trillion in the case of the U.S. government as of early 2019.