Real Deficit

Categories: Econ

There’s the nominal deficit, and there’s the real deficit. Two peas in a pod.

The nominal deficit, like nominal prices, are the actual dollar numbers we see. If a country raised $10 billion in taxes but spends $15 billion, then it has a $5 billion nominal deficit.

The real deficit is the nominal deficit minus inflation. Inflation matters, because it determines how much value you can buy per dollar. Back in the day, you could buy a lot with a dollar. Today, a dollar is increasingly worth less and less...because of inflation.

If that country has a $5 billion nominal deficit, what’s the real deficit? If we divide the nominal deficit by the percent change in prices, we’ll have it. If inflation was around 2%, then that $5 billion in real terms from a year ago is now over $5.1 billion.

Yep, as dollars are worth less and less, you’ll need more and more of them to pay that debt back...assuming the deal took inflation into account.

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Finance: What is Deficit Financing?4 Views

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Finance a la shmoop what is deficit financing? well its debt, debt used to you

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know buy stuff but the phrase deficit financing gets applied in lots of

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creative ways so here's one courtesy of your friends in Hollywood in [Hollywood sign in the hills appears]

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the glory days of sitcom financings like when cheers and the Brady Bunch and

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Friends were still alive and kicking think you know 1970s 80s and pre 500

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channel 90s sitcoms were funded via deficit financing well a given TV series

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err 22 23 24 25 ish episodes with a flashback or a blooper show thrown in

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for good measure well that might cost a million bucks an

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episode to produce and were kind of rounding the numbers a lot here so

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that's 25 million bucks for a season of yucks the network ABC NBC CBS and Fox [TV network logos appear]

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that's all the network was allowed to air the show twice and for complex legal

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reasons was not allowed to own the show or really participate in its profits if

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there were any yes poor you network that's it so NBC might have paid in

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fifteen million dollars to shmoop Warner mount you know producers of

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friends for the right to broadcast 2 airings of the show over a one-year

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period that's 15 million for a product that costs 25 million so the show's

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producers lost 10 million dollars each year that they were in primary

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production gulp yeah that's a lot of dough but wait Jennifer Aniston has a [Private jet appears on runway]

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really nice jet and gallons of Botox and the hair thing going on there yeah it

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cost big bucks even if most of it really isn't hers well she had to have gotten

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paid a big fat profit participation right well not right away you know like

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she got a salary to be on the show in the first part but you know you get

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money for reruns well in fact friends might have lost say

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four years worth of 10 million bucks a year before the auction floodgates then [Man standing on floodgates]

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opened into the land of reruns where the producers were then paid handsomely for

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their hit show and if you think about the math of a rerun all you have to do is

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hit play on the VCR again and you get paid for that right? so

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really high margin business somebody had to have taken the very big risk of

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deficit financing that 40 million bucks up front though waiting praying hoping

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for that billion dollar win at the end so a given deficit financier might

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contribute 20 million dollars to buy two-thirds of the "back end"

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of the show and we like big back ends we cannot lie meaning the future profits [Profits from ad sales and friends appear]

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that would come from hitting the rerun button on that VCR and selling ads

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against it so how or why could a 20 million dollar investment turn into half

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a billion dollars in a decade or less well because oh so many shows fail and

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if a show goes only two seasons on a network well it has pretty much zero

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after life like nobody watches it in reruns it just dies on the vine

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worthless and all the money that the deficit financier invested well pretty

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much goes up in smoke so yeah deficit financiers are kind

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of like the friends on friends kind of like the venture capitalists of

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Hollywood or at least how Hollywood used to be as long as there's a pile of cash [A big pile of cash on a hill]

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at the end of the rainbow they'll look you know you know it goes

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sing it with me....I'll be there for you yeah I was the original song

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there and then they fired me for some other yutzy band

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