A Scale Everyone Can Understand
By R.J. Fee
I know that the average person is confused by the billion and trillion dollar figures thrown out by our politicians. That is why I have compiled the same ratios to give you an idea of what the United States would look like if it were an American household.
If the U.S.A were a household
Annual Income: $55,000 (2007 U.S. Census report median income approx. $50k)
Annual Spending: $65,560
Total Debt: $220,000
Total Worth: $314,600 (includes median home value of approximately $200,000)
Questions
1. Just how long could your household continue to spend $65,560 while earning $55,000?
2. How long could your household continue to build upon a total debt of $220,000 without facing foreclosure/repossession?
3. Would you lend money to someone with this financial record?
As I detailed in a previous blog, it doesn’t surprise me that individuals have not played by the proverbial rules, because we as a nation have refused to play by the rules of finance for decades.
I arrived at the aforementioned numbers by comparing the following approximate numbers as reported in various government reports:
2008 U.S. revenues $2.5 Trillion
2008 U.S. spending $2.98 Trillion
2008 U.S. Debt $10 Trillion
2008 U.S. Gross Domestic Product $14.3 Trillion
“We might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every member of Congress and every man of any mind in the Union should be able to comprehend them, to investigate abuses, and consequently to control them.” Thomas Jefferson 1802
A great post--putting the matter into scale--and reinforcing what you posted on my blog about setting priorities in alignment with both our strategic needs but also what the budget can afford.
ReplyDeleteVery interesting. I think that within 5 to 10 years a credit crunch is inevitable for this "household" because, as leverage increases, lenders raise their interest rates to reflect higher risk. This coincides with the household's reduced ability to pay interest. So, either the household stops borrowing, cuts spending and makes minimum credit card payments indefinitely, or it takes a less responsible step, which destroys its ability to borrow ever after.
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