The federal debt is not cause for alarm

Conventional wisdom: 
The out-of-control federal debt has skyrocketed to unprecedented levels. 

      The U.S.'s federal debt is $9 trillion. This is the largest debt of any nation by far and is a result of many years of budget deficits. It means that 10% of the U.S. budget goes to pay interest on the debt owed by the U.S. government to others.

However ...

      As a percent of GDP, the debt is lower today (65.5%) than in 1996 (67.3%). The debt to GDP ratio is relevant because the size of the economy is what determines the country's ability to pay the interest on its debt.

      The U.S. debt is also lower than many developed countries and most developing countries as a percentage of annual income. According to the IMF World Economic Outlook 2007, the US debt is lower than the chart above--and most headlines--indicate. The IMF reports "net debt," subtracting a nation's liquid assets on hand from its debt. By this measure, the U.S. debt is just 44% of GDP. That compares to Japan at 90%, Italy at 100%, Germany at 57%, and France at 54%. Great Britain was at 38% and Canada, benefiting from the commodity boom, has dropped its debt down to just 25% of its GDP. (The IMF does not report comparable information for other countries.)

       Budget Deficit: When the government takes in less money through taxes than it spends, this is a deficit. A budget surplus occurs when the government takes in more than it spends.

       Federal Debt: The cumulative effect of budget deficits or surpluses. After a deficit of $1 billion per year for five years, the federal debt would be $5 billion.

       Trade Deficit: When the people of a country buy more than they sell, this results in a trade deficit. Adam Smith argued that a trade deficit is not bad because when currency is exchanged for, for example, pots, by definition the trade are balanced. Each party got what it considered a fair deal.

       Supplemental Appropriation: Large temporary expenses must go through a separate approval process so they do not become part of the base budget. This spending still becomes part of the official budget and is tracked in total spending figures like other expenses.