Government Debt is Your Problem

What if the U.S. Government were a family?  You may have seen the analogy floating around the last couple of years comparing the debt and income of the U.S. government to that of an average family. How does the nation’s budget compare to the standard family? I looked at this three elections ago. Let’s have fun with this example again.  

Our fictitious family, the Joneses, earn $100,000 a year. Even though $100K a year is a nice income, our family spent over $140,000 last year, which means they borrowed an added $40,000. Unfortunately, this is not the first time the Joneses borrowed money to keep up their lifestyle. In fact, they have about $660,000 in debt already. 

If this was your family budget, you’d probably be freaking out. You wouldn’t be arguing whether you needed to cut spending or increase income…you’d do both. You know it’s going to be painful. You know there is no way around it. You know it will take a long time. It won’t be pretty. And those promises you made the family about paying for college; that vacation in Hawaii; and your retirement dreams—well, prepare for disappointment. 

Of course, when it comes to the Fed and their budget, the money they “make” (income--mostly from taxes) isn’t spent on themselves. Instead, they have a family business and, as citizens, we are their customers. As a service to us, they help us make more money (jobs, worker training, child care, and infrastructure); thereby increasing the amount of money they get in return from those taxes. That is why there is a good argument to spend even more money on us (stimulus) to generate even more income down the road. 

The government has been doing this for a long time and borrowing most of it. They keep digging a deeper hole. Can they dig themselves out of it? Currently my guess is yes; but eventually the hole can get too deep. It would be different if they were in control, but with about 13% of their outlays being for interest on all that debt, the government is beholden on the kindness of strangers in the form of low interest rates on their loans. Problem is, we don’t control the strangers.  

Of course, the federal budget differs considerably from a household budget. A family has an eventual end to their earnings, while a country lives many, many generations. And for now, our country is also in a good position to borrow a lot of money at very good rates while you or I couldn’t even get a loan in the same situation. And the Fed can even make more dollars if they want to (quite illegal for us to do). 

Still, most of the family budget analogy works. Which is something to think about. Especially as you’ll be thinking about all things government this Tuesday. While you do so, remember it is you, your kids, and theirs who will be paying for all of this through taxes. And in case you are wondering, both candidates’ fiscal plans will increase our annual deficits. After all, we love to hear how they are going to spend money on us. 

For those interested, you can find the federal budget at www.whitehouse.gov/omb and a real time view of the national debt at www.usdebtclock.org.