- Primary deficits: a short history
- What US assets are held overseas?
- Durable goods inflation and effective tariffs
- AI investment and semiconductor prices
- Are Americans optimistic about their finances?
- Primary deficits: a short history
- What US assets are held overseas?
- Durable goods inflation and effective tariffs
- AI investment and semiconductor prices
- Are Americans optimistic about their finances? : Data from the Bankrate Consumer Survey
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Primary deficits: a short history¶
Primary vs total deficit
The US federal government maintains a deficit. That is, it borrows during periods when it collects less in taxes than it spends. There are two main measures of deficits. Our first FRED graph, above, plots the total deficit (solid blue line) and the primary deficit (dashed green line). What’s the difference?
Thetotaldeficit is equal to the difference between government revenues and expenditures. It represents the amount of new borrowing in a given period. Theprimarydeficit is the difference between revenues and noninterest outlays. Or, equivalently, the total deficit excluding interest payments on existing federal debt. This means we look at only current revenues and current expenditures, setting aside this period’s interest payments on its past debt.
The primary deficit is often a more useful metric for assessing fiscal policy because it focuses on today’s budgetary choices rather than reflecting on the burden of past decisions.
Three observations from the historical record
Our second FRED graph, above, plots the total and primary deficits as a share of GDP. Note that deficit and interest data are reported for afiscalyear, while GDP is reported on acalendaryear.
Expressing deficits as a percentage of GDP provides crucial context by showing us how large the deficit is relative to the overall economy. Three patterns stand out in the historical data:
- The WWII spike and recovery: Both the primary and total deficits spiked dramatically during World War II as the government borrowed heavily to finance the war effort. When military spending declined after the war’s end, the two deficits fell accordingly. Notably, in some of the immediate postwar years, both deficits became negative, which we’d refer to as a primary surplus and a total surplus. During those years, the federal government was partly paying down the war debt it had accumulated.
- The most recent surplus episode: The one other post-WWII episode with an extended surplus (that is, an extendednegative primary deficit) was during the 1990s. This period had strong economic growth, rising revenues, and restrained growth in federal spending.
- The gap narrows when interest rates are low: The difference between the primary and total deficit depends importantly on the interest rates on government debt. When rates are low, interest payments typically shrink and the two deficit measures converge at least somewhat. When those interest rates rise, the gap tends to widen. Maturity also matters here: If much of the debt is short-term or coming due soon, higher interest rates pass through to federal interest payments faster than if most debt is locked in at longer maturities. How these graphs were created: First graph: SearchFREDfor “Federal Surplus or Deficit” and select the Annual, Millions of Dollars, Not Seasonally Adjusted series. Under “Customize data,” enter the formula-a. Click on the Edit Graph button and select the “Add Line” tab to search for “Federal Surplus or Deficit” again. Don’t forget to click on “Add data series.” Next, under “Customize data,” search for “Federal Outlays: Interest” and add it to the graph. Then enter the formula-(a+b). Second graph: Repeat the steps for the first graph. Under “Customize data,” search for “Gross Domestic Product” and add it to each series. Then enter the formula-a/(b1000)100for the first line and-(a+b)/(c1000)100for the second.
Suggested byBill DuporandMelanie LeTourneau.