The Deficit Is Vanishing. America Isn't As Broke As You May Think.

You can't turn on the TV without hearing of the United States' burgeoning deficit. But while the deficit may be big in absolute terms, looking at it in relative terms reveals that the United States isn't doing as bad as some may want you to believe.

The cold, hard numbers
In calendar year 2009, at the depth of the recession, the deficit was a massive, $1.47 trillion. At the time, it was more than 10% of gross domestic product -- all goods and services produced within the nation's borders.

The United States' fiscal condition has since improved remarkably. Now, just four years later, the American deficit stands at $560.5 billion for the 2013 calendar year, nearly one-third of the deficit recorded one presidential election ago.

And if we look at the deficit in terms of GDP, we find that the 2013 deficit was just 3.6% of 2012 GDP. As of now, 2013 GDP numbers, though more impressive than the 2012 reading, aren't yet out. But the fact is that the deficit, in relative terms, is just one-third the size of the deficit in 2009. And it's nearly half the size of the deficit in calendar year 2012.

Look at that! The U.S. Treasury ran a surplus in December 2013.

In the last three calendar months of 2013, the U.S. deficit plunged to just $174 billion, down from $293 billion in 2012.

What's behind the drop?
A nation's deficit doesn't drop from $1.06 trillion in 2012 to $560.5 billion in 2013 without some help. Here are the three biggest things behind a falling federal deficit: 

First and foremost, the U.S. government is making a mint from Fannie Mae (NASDAQOTCBB: FNMA  )  and Freddie Mac (NASDAQOTCBB: FMCC  ) , having collected more than $100 billion from the two mortgage giants in 2013. Fannie Mae and Freddie Mac are currently in government conservatorship, so all profits flow to the U.S. Treasury. After years of pumping more and more money into the government-sponsored entities, Washington is finally taking money out.

Jack Lew

Also notable are higher taxes. Before 2013, dividends and capital gains were taxed at just 15%. Now, high-income earners may pay as much as 23.8%. This has an incredible effect on government revenue, as high-income earners who earn the majority of their income from investments paid tax rates that were nearly 40% higher than they paid the year prior. Suffice it to say that there are many unhappy hedge fund and private equity managers who are now paying 23.8% on their earnings, instead of a low 15% capital gains tax rate.

Finally, unemployment and defense cuts helped reduce government spending. In 2013, unemployment benefits fell as the jobless rate dropped to 6.7%. Meanwhile, defense spending, halted by a budget deal, was limited to only 1.8% annual growth from 2012 to 2022.

While it's not all sunshine and rainbows, the fact of the matter is that the deficit, in relative terms, is nearly as small as it was in 2008. And at just 3.5% of GDP, the deficit is well on its way to match the Congressional Budget Office's projection of 2.1% of GDP by 2015. 

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Read/Post Comments (38) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 19, 2014, at 10:48 AM, Gflatt wrote:

    Amazing,, Simply Amazing. Is that what the Ostrich sees when he pulls his head out of the sand??

  • Report this Comment On January 19, 2014, at 4:50 PM, elm61 wrote:

    FNMA...I'm in on this one. Pendulum of opinion starting to shift.

  • Report this Comment On January 19, 2014, at 6:05 PM, WuznotWuz wrote:

    Wow. This is really abysmal, and really, REALLY sad. Fool articles that I have read in the past are usually pretty well researched and presented, but this ... well, it goes against that trend for sure. How can an article be alluding to us "not being as broke as you think" and then focus completely on ... the deficit. That is just the rate at which we are *incurring* the debt, and any honest article would reference it as such. Our actual debt level has skyrocketed, and with the grand budget deal that just passed it is slated to continue to grow. But I guess that is a little too trivial to mention in an article about how broke, or not broke, we are. Really?

  • Report this Comment On January 19, 2014, at 6:29 PM, SkepikI wrote:

    Oh, brother... it only looks good if you limit your vision to 2009-2013. Look at the rest of the two decades ahead of 2013 and you will lose your lunch. The DEFICIT - what we spend over and above what we take in is on a better trend. THE DEBT is NOT!!! since there is still a deficit the Debt keeps getting bigger not shrinking.

    This is sort of like the sailor who noted as the water crept up to his chin, that it wasn't rising as fast as it did earlier. He still drowned.

    <While it's not all sunshine and rainbows, the fact of the matter is that the deficit, in relative terms, is nearly as small as it was in 2008.>

    This is the only semi-rational thought in the whole article. But it still misses the mark because in relative terms means: IN ABSOLUTE TERMS ITS NOT SO LOVELY!

    On the one hand, its nice to know we are making some progress however painfully slow. On the other hand its sobering to realize that if there had not been ADULTS in the Congress demanding that we quit spending like idiots it would have been stunningly worse. On the gripping hand, we are in a very deep hole digging deeper by the minute.

    Give me a rosy bunny rabbits and rainbows article when we run a surplus and stop burning money in DC....until then don't bother.

  • Report this Comment On January 19, 2014, at 6:31 PM, Alex1453 wrote:

    Yes, the deficit is vanishing.....but the debt is unsustainable.

  • Report this Comment On January 19, 2014, at 6:53 PM, SSBN620 wrote:

    Don't be fooled by this propaganda.

    http://usdebtclock.org/ has the real story in real time.

  • Report this Comment On January 19, 2014, at 8:07 PM, comosichiam wrote:

    The idea that we are lowering the deficit is only a play on words we are on the brink of a complete devaluation of our currency you can't keep printing money with nothing to back it so this deficit nonsense is a non starter.

  • Report this Comment On January 19, 2014, at 8:36 PM, quasimodo007 wrote:

    yeah the Evil GOp congress help make their Mafia style GREEDY Privilege CROOKS of wall street even Richer so they can even give themselves even Bigger Multi millions Dollars Bonuses and bigger TAX FREE Paid PERKS and increased their Billions Dollars TAX BREAKS .

  • Report this Comment On January 19, 2014, at 8:51 PM, dog32 wrote:

    #1:Fannie Mae and Freddie Mac, #2: rising taxes, #3: drop in unemployment numbers. You talk about false indicators, these are big ones.

    #1 Fannie and Freddie are bring in better returns on the investments because the Fed bailed them out, costing us billions. #2, every government facility raised its cost. Have you been to a federal park lately? They have cost out tax incentives to all, not just businesses but individuals also. So the tax money is coming into the IRS. #3 is the real lie. The Congress has not yet added the extension to the unemployment benefits. The number of unemployed is still up in the double digits.

  • Report this Comment On January 19, 2014, at 8:51 PM, shape5 wrote:

    This article completely ignores the fact that many Obamacare taxes are already in full swing, thus helping the numbers. It also fails to mention that major Obamacare expenditures have yet to kick in which will adversely affect the numbers as well as be a drag on the economy which will hurt those tax receipts.

    In fact it seems like the author is trying to have the best of both worlds. By taking current numbers and drawing conclusions about the future and then completely ignoring major expenses which also affect the future.

    This is kind of like saying "I just bought a $300,000 Ferrari with no money down on credit; therefore, my net worth just increased by $300,000.

  • Report this Comment On January 19, 2014, at 9:02 PM, 1dave7 wrote:

    How Foolish and Corrupt is the media and our government to say we are not broke. Sorry saying that a month or two of having a few dollars will not make the 20-30+ Trillions of dollars of Long Term debt go away! I am sick of this deceiving of the truth of our TRUE financial condition of this country. If I caused my debt to outstrip my income I would probably be put in jail. Why has the corrupt politician's been brought to justice over this abuse of spending?? Is everybody in Government corrupt now?? It sure looks like it - And the media is being controlled by these same corrupt government leadership. If you want to really see the extent of disaster our country is in - Look into your toilet and see how brown it is at the bottom!

  • Report this Comment On January 19, 2014, at 9:27 PM, TXBigToe wrote:

    Does it matter that our GDP grew by 3% this summer simply because our government changed the way they calculate GDP?

  • Report this Comment On January 19, 2014, at 9:43 PM, Blknblue wrote:

    Every article now from these guys is pure Liberal propaganda. As many have note the deficit is the rate of over spending. The last five years have all been record setting. There has never been a deficit higher than the last five years in other words. The debt has doubled in the last five. Total debt is now higher than GDP and grows faster than GDP.

  • Report this Comment On January 19, 2014, at 11:11 PM, madmilker wrote:

    If the US Government was $71 million in debt in 1790 and there has not been but one 10 year period in the past 100 years that the debt of We the People has gone down 1920-1930....

    There can be no decrease in the debt now....

    Maybe there is a decrease in what the turnips on Jenkins Hill is spending but not a decrease in the DEBT on the shoulders of We the People....

    1975 Total DEBT...a mere $533 billion...

    That was the last year America had a trade surplus and in 38 years the debt has mushroom over $16.5 trillion.

    http://www.treasurydirect.gov/govt/reports/pd/histdebt/histd...

    Just the interest on today's debt is all most what the total debt was back in 1975...

    http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

    and that is the reason "interest rates" will never go up in the next 10 years or so...

    because if it be a fact that the turnips on Jenkins Hill can buy back the Federal Reserve for a mere $450 million dollars there ain't no way in hell those stockholders of the Federal Reserve will ever let it happen.

    http://famguardian.org/Subjects/MoneyBanking/FederalReserve/...

    And since it has been 38 years since America has had a trade surplus...

    You had better wake up on what is coming if America doesn't get back to making stuff...

    http://www.worldthinktank.net/pdfs/TheFlowofTrade.pdf

    Retail makes NOTHING...it only moves a countries currency....

    THINK ABOUT THAT...

    Socialism has been around ever since Soviet Leader Khrushchev told Ezra Taft Benson

    “You Americans are so gullible. No, you won’t accept communism out right, but we’ll keep feeding you small doses of socialism until you’ll finally wake up and find you already have communism. We won’t have to fight you. We’ll so weaken your economy until you fall like over-ripe fruit into our hands.”

    WELL....America is getting pretty fruity....

  • Report this Comment On January 19, 2014, at 11:12 PM, gettinintune wrote:

    So water is now pouring into the hull of the ship only half as fast. You can do what you want, I'm strapping on my life jacket.

  • Report this Comment On January 19, 2014, at 11:35 PM, StayDry wrote:

    When there's nothing in the budget for paying down the tremendous debt, and you're only budgeting minimum payments on interests, that's a problem.

  • Report this Comment On January 20, 2014, at 6:59 AM, bmmohio wrote:

    Just the beginning steps of a recovering economy. If you want real numbers go to the BEA and bureau of national debt. I hope the fed starts buying back US debt that other countries own before the dollar value increases. Should help deficit and debt owed. I also hope they hold onto fannie mae & Freddie mac a little longer since the mess that was created destroy current and long retirement plans. It would be good to pump money into social security that is truly owed.

  • Report this Comment On January 20, 2014, at 7:25 AM, thecarnivore123 wrote:

    Even my 4th grader knows that while the DEFICIT might improve from time to time, the NATIONAL DEBT is the one and only measure of a nation's fiscal responsibility. How this writer could have missed something that 4th graders know is beyond me. And the DEBT is a nightmare - why don't you write an article about that? Oh that's right, you won't, because it would make your boy Obama look bad.

  • Report this Comment On January 20, 2014, at 7:35 AM, Mathman6577 wrote:

    I wouldn't be bragging about a $561B deficit. The total debt load is >$17.3T and growing. As soon as interest rates start to really rise we are going to be in trouble.

    And the real reason that the deficit dropped is the sequester, not because of Fannie and Freddie (the $100B figure quoted seems way too high and if it came from the government I don't believe it). Putting a picture of Lew and Obama in the article is disingenuous (implying that they had anything to do w/ the drop is not accurate).

  • Report this Comment On January 20, 2014, at 8:46 AM, carmeno wrote:

    I'll just pretend that this is a joke (at least I hope so since this is a financial site). If you don't take into account debt, just about everyone's financial situation got better. It seems to me that publishing nonsense articles take away from Motley Fool's credibility as financial "experts".

  • Report this Comment On January 20, 2014, at 8:54 AM, ugo wrote:

    I am upset MF would run this piece. Anyone that watches Fox knows we are doomed and Obama has destroyed the country. Why not do a piece on Benghazi?

  • Report this Comment On January 20, 2014, at 10:00 AM, Hielhitler wrote:

    On the outside, the U.S. economy appears to be recovering from dramatic lows just a few years ago, when the country was navigating through one of its worst financial crises in history. But before you pop the cork on the champagne bottle and celebrate, there are seven things you need to understand about the real state of the economy that don't bode well for our future, if they remain unchanged.

    1. Nearly 92 million have dropped out of the work force.

    2. 47.4 million on food stamps.

    3.11 million on disability.

    4. Since 2009 one of three have lapsed into poverty.

    5. US debt continues to spiral upward.

    6. Unsustainable unfunded liabilities getting worse.

  • Report this Comment On January 20, 2014, at 10:30 AM, Chris987 wrote:

    The issue is NOT our deficit in currency terms; it is our JOBS deficit caused by our traitorous globalist politicians who have offshored America's valuable jobs to China & India. In this global economy, JOBS are the true global currency; not $ nor gold.

  • Report this Comment On January 20, 2014, at 10:45 AM, RonU wrote:

    Have you never here of INFLATION? With the Fed printing oceans of money won't the deficit naturally go down when measured against GDP?

    The article was no doubt supplied by the White House.

  • Report this Comment On January 20, 2014, at 11:54 AM, buz wrote:

    Isn't it wonderful. We're only 17.3 TRILLION in debt and we have reduced the amount we are adding to it to about 1 1/2 billion dollars a day. At this rate it will be at least a year before the total debt reaches 18 TRILLLION. Hell, we should start several new welfare programs to spend more money on. However paying just the interest on this massive amount of borrowed money will probably suffice once interest rates raise back to normal levels.

  • Report this Comment On January 20, 2014, at 11:56 AM, Rockyvnvmc wrote:

    Some folks get confused, when talking about the Budget Deficit, as opposed to our National debt.

    The budget deficit is how much we are spending OVER our approved annual budget (providing, of course, that our outlaw 'administration' even Bothers to Submit one, on time, if ever). Of course, our National Debt is still upwards of $17 TRILLON and continually growing!

    note; The US pays ONLY the INTEREST on our National debt. and is not attempting to pay down the balance. While the (Privately Owned) Federal Reserve is artificially keeping our interest rates low, this amounts to a Never Ending , continually growing, unbelievably humongous, Debt Load, that we are foisting off on our children, grandchildren, great grand children, ad infinitum.

    This is simply unconscionable !

  • Report this Comment On January 20, 2014, at 12:29 PM, GaryDMN wrote:

    The deficit is cash flow, so even though cash flow looks a bit better, we still borrowed over a trillion dollars a year, so our debt is rising rapidly. We are borrowing money from future generations. Children born in the USA today are hundreds of thousands in debt, when they take their first breath.

  • Report this Comment On January 20, 2014, at 12:42 PM, ffbj wrote:

    So I guess the way to get lambasted is to write an article saying things are not as bad as people think.

    Personally I am agnostic when it comes to things that I, 1. can't control and 2. Have no effect on why I am in the stock market: to make money.

    I am too busy raking in the cash that I have made over the past 5 years., to heed all those doomsayers out there, that say it is worthless. It isn't.

  • Report this Comment On January 20, 2014, at 12:52 PM, CptWayne wrote:

    Another misleading article bent on what? Confusing readers? The national debt is not to be confused with the annual deficit. Obviously, this country has a tough long way to go to pay its debts. Saying the US is not as broke is idiotic at best. China has stopped buying our debt, now if the interest rates soar this will spell disaster for the US. Credit card debt will eat up American household's ability to repay the cards, now exempt from bankruptcy. End result will be the stripping away of America's wealth right into the coffers of the fat-a$% bankers. Get your cards paid down before its too late. The spike in interest rates will kill us all.

  • Report this Comment On January 20, 2014, at 1:19 PM, TXObjectivist75 wrote:

    Amazingly short term thinking. What happens to the deficit picture in 3-5 years if the average Treasury rate approaches the historical average of ~5%? You're looking at $1T+ in debt service alone (equal about to the revenues from all inidividual income tax receipts). Or, conversely, the Fed keeps rates at basically 0% forever and/or prints more and more money just to buy up new US debt that no one wants. For a company that is supposed to think that long term thinking in investing is Foolish, I have yet to see an article that addresses the long term effects of the debt, and mostly just cheerleads the "It's not so bad, really!" short term view.

  • Report this Comment On January 20, 2014, at 1:36 PM, TXObjectivist75 wrote:

    In real terms, the deficit is still higher by 70-80% than the highest deficit before Obama took office even after 5 years.

  • Report this Comment On January 20, 2014, at 2:27 PM, erbbernal wrote:

    Don't mean to be disrespectful, but this, particularly the title, may be the most "foolish" thing I've ever read on this web site. The deficit is vanishing .... let's get real.

  • Report this Comment On January 20, 2014, at 6:15 PM, gil1965 wrote:

    It is difficult to believe this article wasn't published early. It was obviously intended for April First.

    To think that a small decrease in what we borrowed THIS YEAR can materially affect the Trillions we owe is either uber stupid or criminally misleading.

  • Report this Comment On January 20, 2014, at 6:52 PM, tom474e wrote:

    Sadly, the deficit doesn't have much to do with the economy. Will a lower deficit bring jobs back? It wasn't the deficit that caused the 2008 crash and recession, it was the banksters that created the housing bubble that were to blame.

  • Report this Comment On January 20, 2014, at 7:21 PM, taxistheft wrote:

    Just lost any respect I had for Motley Fools. When did they hire head-in-the-sand bloggers from Yahoo to play "Happy Days Are Here Again" on kazoos?

    Job Market - nothing in the foreseeable future in the way of significant high paying secure jobs with benefits, only bottom rung part time work, no living wage

    US Education - mediocre at best (the kids are deep in debt and competing for jobs against the illegals Obama and various illegal-loving states give welcome)

    Wages - stagnant (or falling) for what, 2 decades?

    Taxes - local, state & federal - lying career politicians always want more, plus fees, fines & penalties

    Housing - millions lost their homes to corrupt bankers in a massive redistribution of property

    Anyone who believes the 6.7% unemployment number has SUCKER written on their forehead.

    Anyone who believes inflation is low has CLUELESS written on their forehead.

  • Report this Comment On January 20, 2014, at 7:49 PM, Damocles wrote:

    So let me get this straight. We owe less today due to raising taxes and the massive income from those two successful geniuses, Fannie and Freddie. A late sad, gone friend of mine once said when I asked her in a tax debate if 20% income tax was better than 10% and she promptly replied excitedly: "Yes". To which, i quickly ended the debate by saying: "Well then, 40% would clearly be better than 20%, correct"? To which she promptly replied: "Yes". To the author of this article that believes this nonsense, from a die hard progressive to your ears: "Let's move to Utopia overnight and go to "80".

  • Report this Comment On January 20, 2014, at 8:49 PM, RickLT wrote:

    Wait till Obamacare fully kicks in with the vast majority on medecaid assistance, and few younger workers willing to buy into it. It will easily ad $1T to the deficit in 10 years.

  • Report this Comment On January 21, 2014, at 10:01 AM, sogole wrote:

    Bet if they "Took off their shoes " when they counted the results would be different.

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