How does the government finance a deficit?

There are only two ways to finance anything (including operating deficits): with debt or with equity. One of the ways the government finances deficits is by selling securities (in other words by incurring debt), such as government bonds, and treasury bills and notes. The government raises money with these sales but they represent debt owed to the bondholders and note holders that must be repaid over time with interest. This is why the national debt keeps increasing: more and bigger deficits requiring more and bigger debt to cover them.

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