Recently, I've realized that my "dismal blog about this most dismal of sciences" has lacked any of the actual dismal science. So, let's rectify that with some basic concepts. We begin with definitions, courtesy of Investopedia:
Deficit: a situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits.If you are facing a budget deficit - which is to say, you are spending more than you earn - you have three options:
Debt: an amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
- You can reduce the amount you spend.
- You can take on debt.
- You can attempt to generate more income.
- Spending less means actually reducing your total spending. It does not mean reducing the amount you spend on your current liabilities, and then taking the remainder and using it to take on more liabilities.
- Debt is a liability. If not utilized properly, and if not managed wisely, it will make your situation far worse.
- You may not actually succeed at generating more income. If you spend the income before you actually have it, and then you do not get it, you will make your situation worse.
If you select option 2, and you fail to manage your debt properly, you increase your deficit. The fault, however, does not lie with your lender.
If you select option 3, and you take on additional liabilities in anticipation of that income, and then you do not generate the anticipated income, you increase your deficit. The fault, however, does not lie with either the anticipated source of the anticipated income or the entity that encouraged you to take on the new liability.
The fault, in each case, lies with you. After all, you made the decision to take on the additional liability.