Monday, September 26, 2011

National Debt Made Real

A stockbroker sent me an email with a short illustration as to why the financial status of the US was recently downgraded.  I imagine the following is floating around the internet.  Yet, it's a perfect explanation in easily understood terms:

Why the US was downgraded...

U.S. Tax revenue: $2,170,000,000,000 
Fed budget: $3,820,000,000,000
New debt: $1,650,000,000,000
National debt: $14,271,000,000,000
Recent budget cut: $38,500,000,000

Let's remove 8 zeros and pretend it's a household budget:

Annual family income: $21,700
Money the family spent: $38,200
New debt on credit card: $16,500
Outstanding balance on the credit card: $142,710
Total budget cuts: $385.

Does this clarify it?

Pretty enlightening, that example.  The complaint that we are indebting our children and grandchildren makes more sense.  The family debt must be paid off by future generations in some fashion-- whether by more taxes, printing of money (inflation), more borrowing (borrow from Peter to pay Paul), or transfer of assets to our creditors (China), or a combination of all.  While we have eliminated "debtors prison" in the United States, it can be seen that we are imprisoning future generations (i.e., we are taking away their choices and liberty) and leaving them to find a solution. 

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