Deficit - What does that mean?

The Latin word deficit means deficiency and has other definitions, e.g.:

1. The general approach:

• Inadequacy or insufficiency: a deficit in grain production.
• A deficiency or impairment in mental or physical functioning.
• An unfavorable condition or position; a disadvantage.

2. The financial approach:

• The amount by which a sum of money falls short of the required or expected amount; a shortage: large budget deficits.
• A business loss.

What Does Deficit Mean Financially

Talking in financial terms, deficit means a situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits .
A deficit is the opposite of a surplus (superavit). If a country imports more than it exports, it is said to have a trade deficit.

Primary Deficit and Total Deficit

The Primary Deficit is the result of government revenue minus expenses, excluding debts interest payments. Roughly speaking, it is the government's cash generation.

The Total Deficit is equivalent to raising taxes minus expenses, including debt interest. It is far more complete, since the number represents the total borrowing of the public sector.

Trade Deficit

The Trade Deficit — the excess of imports over exports — has a direct and serious effect on the value of country money. As long a country continue having big trade deficits, it means spending more money outside the country than making at home.
For instance, If your family spends $3,000 for every $1,500 you bring home, something eventually gives way.
So, likewise, If the government's deficit wasn't well managed it might lead to catastrophic consequences.

The government deficit is good or bad?

If the government borrows (runs a deficit) to deal with a severe recession (or depression), to help self-defense, or spends on public investment (in infrastructure, education etc.), the vast majority of economists would agree that the deficit is bearable, beneficial, and even necessary.
On the other hand, if the deficit finances wasteful expenditure or current consumption, most would recommend tax cuts to stimulate private investment as a way to balance the budget.

United States deficit or surplus percentage 1901 to 2006

The Deficit Snowball

Each year, the deficit is added to the government debt. The Treasury, to raise the money to cover the deficit, must sell Treasury bonds.
Treasury bonds are a marketable, fixed-interest government debt security that make interest payments semi-annually.
This is known as the public debt, since these bonds are sold to the public.

The government debit, plus the interest rates, should be paid someday and the taxpayers will do so. They will have to pay higher taxes to pay the interest on the debt.
Treasury bonds mean the taxpayer's promise to pay the bills. If there's too much debt, the taxpayers might become incapable to do so and this will lead to the bankruptcy.

In conclusion

Deficit is not necessarily good or bad!
Deficit intrinsically implies in debt, and debt is like double-edged sword. It can either save you or hurt you.

The real challenge is learning how to deem which debt makes sense and which does not, and, then, wisely managing the money you do borrow. Avoiding debt isn't always smart because it could mean cleaning out your precious cash reserves if an emergency arises.