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Dear Mr. Berko: I listen to the TV news people talk about the economy, and they refer to the 鈥渄eficit鈥� or the 鈥渄ebt.鈥� It sounds like both words mean the same thing. Several of us at the office think that they have different meanings as far as the economy is concerned, but that difference is too subtle for us to understand. Some of our co-workers suggest that there鈥檚 no difference. So I have been elected to write and ask for your help in telling us what those words mean.

One more thing: Two of us will be retiring next year when both of us will be 68. Both of us are now on Medicare, which we know will change tremendously when the new legislation is passed by Congress. When the health care bill is passed, I think President Obama may be picked as Time Magazine鈥檚 Man of the Year. Do you think the new Medicare will be an excellent choice for Americans? Do you have any words of wisdom regarding this new legislation for two seniors who will, as you say, 鈥渉ang up their tools?鈥�

F.D.
Aurora, Ill.

Dear F.D.: President Obama may be chosen as Time Magazine鈥檚 Man of the Year, but I feel that distinction has lost its cachet. In 1938, Time鈥檚 Man of the Year was a failed artist whose infamy is known around the world. His name was Adolf Hitler. I know Barack and Adolf have as much in common as time and bacteria, which is why I don鈥檛 place any significance on any of Time鈥檚 choices.

I don鈥檛 care to discuss this legislation, but I鈥檒l share two thoughts with you: First, none of us would have a problem with the new health care legislation if every member of Congress who votes for it would be required to immediately commit suicide when costs exceed the projected amount by 25 percent; and second, have all your elective surgery completed next year (new knees, prostate, back, etc.) and all elective testing done in 2010. If the legislation passes, those procedures may not be available due to your ages.

I鈥檓 disappointed that few Americans know bupkes about simple economics and the effects of supply and demand. The following should answer your questions.

Assume that on Jan. 1 you budget $100,000 in spending for the calendar year 2009. That $100,000 pays for your helicopter maintenance, food, clothing, office expenses, Propofol injections, equipment purchases, credit card payments, health insurance and vet bills for your white tiger. Well, it seems that your health insurance costs unexpectedly increase $400, your office expenses increase $600, your credit card payments increase $700 and your vet bills are $500 more than anticipated. Well, at the end of 2009, you spent $2,200 dollars more than you budgeted. The difference between what you spent ($102,200) and what you budgeted ($100,000) is $2,200 and is called a deficit. In fact, you had to borrow that $2,200 because you had no cash in the bank.

Now, it seems that you also spent $1,945 more than you budgeted in 2008, $1,575 more than you budgeted in 2007 and $1,250 more than you budgeted in 2006. Each year, you had to borrow that shortfall. So in those four years in which your spending exceeded your budget, you accumulated a combined deficit of $6,970.

And the combined total of those accumulated deficits is called the 鈥渄ebt鈥� that you have borrowed incrementally each year and upon which you have been paying interest.

Well, in government speak that accumulated debt is called the 鈥渘ational debt,鈥� which is the combined total of every deficit of every administration since the First Continental Congress. The 鈥渄eficit鈥� for the 2009 fiscal year (not calendar) ending in September is expected to be over $2 trillion and the combined deficits over the past five score years will exceed $12 trillion. And at an interest cost of 4 percent, we are paying some $500 billion in vigorish. You can thank the 540 members of Congress for this abomination 鈥� they approved every penny of it.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at [email protected].
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