I found a great article over on Peak Prosperity which I wanted to share. Quite often I find myself in discussions related to the national debt, unfunded liabilities or government spending in general. Some people get it, as in we are in big trouble. Others tend to play down the issue almost as if they are in denial. I recall one individual (who is college educated) state the following:
“yea but that isn’t real [debt] right? I mean we don’t have to pay that back do we?”
Oh my, just how far do we have our collective heads buried in the sand? The sad truth is that many people simply do not understand the situation we face as a country nor do they want to. I say we because even though the vast majority of the populace live their lives inside of 50 square miles never venturing out of their suburban/strip mall lifestyle, what is going on with our current economic situation will have a direct impact on each and every one of us (if it hasn’t already). The problem becomes framing the issue in terms that are easy to relate to. So often we hear the words billions and trillions mentioned on the news, we have become desensitized to the sheer scope of their meaning. What follows is a great article which breaks things down in terms which I believe are much easier to digest.
I need your advice. I have a relative who is in financial trouble. He makes $50,000 a year, but he spent $74,591 last year, and his prospects of making $50,000 this year look kind of bad. There’s a good chance he will get a pay cut.
Unfortunately, he’s been overspending for quite a while and has charged $295,632 on credit cards. He’s been lucky enough to get low teaser rates, and when those have expired, he’s been able to transfer the balances to other low-rate cards. So he keeps charging $24,591 per year beyond his income. If he can’t keep rolling over his debt at super low rates, the interest will quickly eat him up.
But, that’s not his worst problem. He convinced his family he was a great investor. His parents gave him a portion of their income for many years, and he promised he would make regular payments to them and cover their medical care when they got too old to work. The problem is, he spent all the money. He also has dependents who are poor, and he promised to help them out, too. To cover those promises, he should have $2,372,953 sitting in a bank account earning an interest rate that keeps up with inflation. But the money is all gone.
So what should he do? Well, his Republican friends, who say they are responsible with money, have decided he must really cut spending to get things under control. There are lots of things he can live without, so they say he should reduce spending by $1,292 per year. His Democrat friends say that’s too much. They feel it would be a great hardship for him to cut spending that drastically, so reducing it by $137 should be about right.
So here’s the picture:
- $50,000: Income
- $74,591: Expenses
- $24,591: Deficit
- $295,632: Short-term revovling debt at artificially low rates
- $2,372,632: Unfunded promises
- $1,292: Republican friends budget cuts
- $137: Democrat friends budget cuts
So, what does the future look like for my Uncle Sam? Do you think he can keep going like this much longer? What about his family who are counting on the promises he made to them? Do you see any possible solution other than bankruptcy?
Multiply the above numbers by 47,620,000, and you get the fiscal picture for the United States Government in 2010:
- $2.381 Trillion: Revenue
- $3.552 Trillion: Budget
- $1.171 Trillion: Deficit
- $14.078 Trillion: Debt
- $113 Trillion: Unfunded Liabilities (Social Security, Medicare, Medicaid)
- $0.0615 Trillion ($61.5 Billion): Republican proposed budget cuts
- $0.0065 Trillion ($6.5 Billion): Democrat proposed budget cuts