Whenever the talking heads on TV start talking about the national economy, most of our eyes start to glaze over. The gigantic numbers that they throw out there are ridiculous; most Americans have no idea what those numbers mean in practical terms. So, I thought it’d be fun to turn those figures into something we can understand a little better—like a household budget.
The federal government will take in $2.173 trillion in 2011. That’s their income, and it sounds pretty good. Until, that is, you factor in that the federal government will spend $3.818 trillion during the year. So, just like many families, the government’s outgo exceeds their income—to the tune of $1.645 trillion in overspending. That’s called the deficit. Altogether, the government has $14.2 trillion in debt.
What would happen if John Q. Public and his wife called my show with these kinds of numbers? Here’s how their financial situation would stack up:
If their household income was $55,000 per year, they’d actually be spending $96,500—$41,500 more than they made! That means they’re spending 175% of their annual income! So, in 2011 they’d add $41,500 of debt to their current credit card debt of $366,000!
What’s the first step to get out of debt? Stop overspending! But that means a family that is used to spending $96,500 a year has to learn how to live on $55,000. That’s a tough pill to swallow. Those kinds of spending cuts seriously hurt, but it’s the only way out of debt for John Q. Public.
If I ever got a call from a family that was spending $41,500 more than they made every year, you would definitely expect me to yell at them for their dumb behavior, right? Kids, no more McDonald’s four times a week. Snacks come from the grocery store now. And we’re not going to the movies for a while, so break out the board games and TV Guide. This family has a problem, so it’s time to amputate the lifestyle!
It works the same way for the government. You can’t borrow your way out of debt, whether you’re a typical American family or the entire U.S. government. At some point, you’ve got to say, “Enough is enough!” and make the hard cuts necessary to win over the long haul.