In the wake of tonight's big S&P downgrade [pdf], my Dad sent me the following email from Dave Thomas, CEO of Equitas Capital Advisors LLC. Until now, I hadn't considered the situation in this light ...
The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let's put the 2011 federal budget into perspective:
- U.S. income: $2,170,000,000,000
- Federal 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 (about 1 percent of the budget)
It helps to think about these numbers in terms that we can relate to. Let's remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.
- Total annual income for the Jones family: $21,700
- Amount of money the Jones family spent: $38,200
- Amount of new debt added to the credit card: $16,500
- Outstanding balance on the credit card: $142,710
- Amount cut from the budget: $385
So in effect last month Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget. What family would cut $385 of spending in order to solve $16,500 in deficit spending? It is a start, although hardly a solution.
Now after years of this, the Jones family has $142,710 of debt on its credit card (which is the equivalent of the national debt). You would think the Jones family would recognize and address this situation, but it does not. Neither does Congress. The root of the debt problem is that the voters typically do not send people to Congress to save money. They are sent there to bring home the bacon to their own home state.
To effect budget change, we need to change the job description and give Congress new marching orders. It is awfully hard (but not impossible) to reverse course and tell the government to stop borrowing money from our children and spending it now. In effect, what we have is a reverse mortgage on the country. The problem is that the voters have become addicted to the money.
Moreover, the American voters are still in the denial stage, and do not want to face the possibility of going into rehab.
Now, do you get how serious this is?
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