Debt and Deficit: Differences and Debate

Countdown to destruction!

The coalition uses the analogy of household debt to describe Britain’s horrendous public finances. The national credit card is maxed out as they say. To some this is either simple minded or dishonest, either way, they say, it’s wrong. Are they right?

The first thing is to highlight the difference between two terms which are often used interchangeably but which actually mean very different things; debt and deficit. The debt is the amount of money owed. The deficit is the amount by which that amount is increasing. It is a simple stock and flow concept; debt is the water already in the tub, the deficit is what is pouring out of the tap.

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One thought on “Debt and Deficit: Differences and Debate

  1. right now its a bubblee waiting to burst – i know this is me just picking at what I am interested in (not that I am not interested in the whole article, but me, myself and I are more important nowadays: property. – Yes, I agree buying a house/property is not an investment but rather bubble waiting to burst. Thosr who are clever will save now, wait til it does burst and buy later. As for your simplistic analogies of complicated economic terms: I applaud (spelling at 3am??) you! Very interesting article! But… you will be disappointed to know I am certainly NOT a Concervative supporter.. ask me why another day, when the pain goes away! (it rhymes!)

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