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A Hypothetical Look at Our Government's Debt Load

Seth Jentner09/17/2013

Some people are concerned that our government debt is having a negative impact on the economy. Others don’t believe this is an issue. Let me try to put this into perspective.

When we speak of the government having debt of nearly 17 trillion dollars, with an annual deficit of 1.1 trillion dollars in 2012, it’s hard for us to get a handle on what this means.

Let's translate these numbers into what it would look like for a family that ran their personal finances the same way. Let’s assume our hypothetical family has a household income of $100,000 annually. What would their family spending and debt levels look like?

  • Annual income = $100,000/year
  • Annual spending = $160,000/year
  • Annual deficit spending = $60,000/year
  • Credit-card debts = $650,000

At this current rate of income and spending, they would add $60,000 each year to the existing $650,000 debt.

How would you feel with this level of over-spending in your family household? Let’s review the numbers.

  • You make $100,000 annually.
  • You spend $160,000 annually.
  • You already have $650,000 of credit-card debt, to which you add an additional $60,000 each year.

So what do you do? You decide to hold a “Super-Duper Family Deficit Reduction” discussion to determine how to bring your deficit spending under control. If you attempt to reduce your over-spending in an amount equivalent to the Super Committee deficit reduction goal of $1.2 trillion over the next 10 years, that would mean that you will try to reduce your family over-spending by about $55,500 over the next 10 years, or about $5,500 per year. You would try to reduce your spending by only $5,500 each year, which means you will still be over-spending by over $54,000 every year and would continue adding this overspending to your family credit-card debt each year. You would not be paying down your credit-card debt but just adding to your credit card a little slower.

Do I think this has a negative impact on our economy? You bet I do. What do you think?

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