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Government Spending 101

June 27, 2012

Someone who actually reads my stuff sent me the following example. For years I have been saying if we handled our personal finances like the government handles theirs, we would have been bankrupt years ago. The following makes this statement abundantly clear.

In science and engineering, the use of Scientific Notation is used to handle large numbers. This is interesting because it does the same thing where it can be understood by those of us who are mathematically challenged.

Lesson 1:

  • 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: $15,718,000,000,000
  • Recent budget cuts: $38,500,000,000 

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

  • Annual family income: $21,700
  • Money the family spent: $38,200
  • New debt on the credit card: $16,500
  • Outstanding balance on the credit card: $157,180
  • Total budget cuts: $385

Got it?

OK.

Lesson 2, Another way to look at the Debt Ceiling

Let’s say you come home from work and find there’s been a sewer backup in your neighborhood and your house has sewage all the way up to your ceilings. What do you think you should do?

(a) raise the ceilings, or

(b) pump out the crap?

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2 Comments
  1. placervillebob permalink
    June 28, 2012 5:31 pm

    Good article Jon. I wish everyone would read and look at the numbers. Cutting about a $1 a day per year (Total Budget Cuts: $385) is nothing when you consider you have a debit of $157,180 – I didn’t bother to do the math but it would take a lot of years to take care of that amount at a $1/day. I don’t have a degree in economics but would really like to talk to some Phd in said field who can explain to me why we should look at Government spending any different than personal spending. I think if you presented the above numbers to a Bankruptcy Attorney he/she would have no problem recommending the obvious. I also think the Lesson #2 above is likewise obvious (choose option b).

  2. Rob permalink
    June 30, 2012 10:15 am

    Jon, I met you in Truckee this past month, very impressed with how you explain things. You truly make the complicated, simple to understand. I like your illustration in this article. I thought I would expand a little by extrapolating the numbers to around $100,000 income. Most families I know are near that ballpark.
    Your numbers would be the following:

    Income: $99,820
    Spent: $175,720
    New Debt: $75,900
    Credit Card owed: $723,028
    Total budget cuts: $1,771

    Current interest on the debt appears to be around 2% due to the short term treasury bills the government is using. That is a deal at the moment. $14,460 in interest per year, just to maintain the debt. Unfortunately, next year that payment will go to $16k with all the new debt added. As you stated earlier this month, look at the history. History from the 70’s forward, shows the government paying 8% interest on average for the debt. When inflation hits, we will be looking at our household debt going to $64k a year for interest only. It is truly a matter of “when” not “if” we reach a point of insolvency. When interest rates rise, I think 8% would be conservative. In the early 80’s we were as high as 14%. Even if we could go bankrupt, an attorney would still tell you that spending has to be brought under control before filing. Sorry for the long comment.

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