Budgetary deficits when accrued for a very long span of time, say for several decades or centuries, is termed as Government Debts. Under such circumstances, a certain portion of the governmental expenditure is then utilized for repayment of such debts, with some maturity. This maturity is capable of being re-financed, through the issuance of fresh bonds on governmental level. However, it must be noted that while a budget deficit is considered to be a flow, a government debt amounts to a stock. In fact, government debts are nothing but an accrued flow of budget deficits.
The definition of a budgetary deficit essentially evolves from that of governmental debt. When governmental debt is defined as the total amount owned by somebody, budget deficit refers to the amount by which savings enhances or a governmental debt develops. In fact, a practical example will clearly reveal the relationship existing between budget deficit and governmental debt:
Before the war in Iraq, the Americans had a common tendency of mixing up the two different concepts of budget deficit and government debt. This made them believe that the U.S. government was under pressure of a huge budgetary deficit. The actual situation was that the American government was in possession of a substantial budget surplus. The deficit which actually existed in United States of America had in fact, worn out during 1998-2001. This has made the American population believe that the budgetary deficits have increased remarkably than it was earlier, when the condition was that there was sufficient surplus, even without the funds gathered from the Social Securities programs.
Calculation of budgetary deficit is dependent on the following formula:To calculate a debt D, the formula used is:
D = RBt - 1 + Gt(r - g) - Tt ,
where, R= real rate of interest
Bt - 1= debt of the previous year
r=rate of interest
g= rate of growth
Gt= government expenses
and, Tt= tax revenue
However, the budget deficit of every country has its individual factors responsible for such situation to arise, hence varies worldwide. This is precisely why the rising development of Chinese and Indian economies directly unfolds the inflationary impacts, which results from the financial deficits in the two Asian countries.
However, with passing time, these deficits or loans gained popularity in the hands of private investors, who started to accrue sufficient capital to meet their expenses at a time when the government became incapable of printing paper currencies, owing to subsequent inflation.
A permanent loan or deficit is associated with sufficient risk factors for the lenders. At a later stage, attempts were made on governmental levels to do marketing of such deficits or debts by issuance of bonds, payable to the bondholders or bearers, instead of the actual buyers. This indicates that such debts are saleable, provided a person lends it to the other through state money. This simultaneously brings about a reduction in overall rates of interest as well as the risks associated with the entire process. The American Treasury bill bonds and the British Consols are the most popular and best instances of Early Budget Deficits or bonds.