Making Sense Of the US Debt

So after spending almost a week in the US (by the way, 6am flight yesterday so hence no post) I got immersed in the local news and I was trying to wrap my head around the US federal budget that was around $3.7 trillion dollars.  WOW, that’s a lot of zeros!  But besides that, it is interesting that they are spending about $1.6 trillion more than they earn (that’s about twice the entire US military budget according to the paper I was reading).

In order to make sense of how crazy this situation is lets chop off a few zeros and put this discussion in terms of personal finance for someone named Mr. US.  You see Mr. US has a hard life.  For some reason he was appointed peace-keeper in his neighbourhood.  Yet for some reason now a few years later he is also keeping the peace over in the next neighbourhood which has a lake between them, so he spends far too much of his time worrying about things that have nothing to do with his house.  Then to top it off his family is completely dysfunction, they can never decided where to get take out food so they often end up ordering from three different restaurants trying to keep everyone happy.  This is also why they live in a 3000 sq foot home and have three cars.  This costs a lot of money and he is the sole income earner so the family has a massive spending problem because they don’t agree on anything and therfore have a huge debt.

In terms of pure numbers, Mr. US makes a mere $21,000 a year.  Yet this hasn’t stopped the family from spending $37,000 last year ($16,000 more than they made) thanks to their low introductory credit card from the Bank of China.  This is despite the fact the family is already still in debt to the Bank of China for a mortgage of $123,000.  Yet it gets worse for Mr. US, his aging parents have recently moved in so he expects his health care costs and their living expense in the next few years to eat up even more spending.  So his small income which already wasn’t covering the bills is looking rather pathetic right now.  Also no one in the house seems to be willing to discuss the obvious that they need to drastically cut their spending or they have to raise their income by having Mr. US get a better job or having Mrs. US get a job until the debt situation is back under control.

It’s a sad situation for a household, it’s even worse for a country.  I’m just trying to imagine the effect of having their credit rating shot down a level would have on all of this, which by the way is being discussed already.  Perhaps it’s time for Mr. US to cut up his credit cards.

14 thoughts on “Making Sense Of the US Debt”

  1. There’s a sitcom about this … Arrested Development … unfortunately it was canceled a few years back.

  2. Love it! Great post.
    Also, Mr. US’s kids are going to school at a grade level 2 years lower than their neighbours, although to preserve their self-esteem, let’s pretend it’s the same grade.
    Is there a long term inverse stock out there to buy that bets against the US economy?
    100 years from now will we have to be guarding our border against border runners/illegal immigrants from the States? Or will we get sucked down with them?

  3. If you want to blow your mind just stare at the US debt clock page for a few minutes… or hours.

    http://www.usdebtclock.org/

    You think $1.6 trillion budget deficit is bad? how about the current:

    $54 Trillion in Total US Debt
    $16 Trillion in Personal Debt
    $14 Trillion in Social Security IOUs
    $18 Trillion in Prescription Drug IOUs
    $74 TRILLION in Medicare IOUs

    Then watch the trade deficit & oil imports increase as personal savings slowly shrinking away…

    It’s an absolutely brilliant webpage.

  4. Whenever I think about the US and the effects capitalism have had on the planet, all I can think is that all great civilizations of the past have eventually crumbled… Maybe someday in the distant future, NYC will be the next Ruins of the Inca.

  5. For Mr. US this means in addition to his mortgage debt of $123,000 to the bank of china, he sorta also promised to pay the hospital/doctors and his pension plan $1 million dollars, and some day they’re going to want to collect it.

    I sure hope his $21k income can support that kind of debt repayment.

  6. There is a financial upside to all of this doom and gloom…if one knows where to look. Something they don’t teach in school.

    Exchange traded bear funds are doing well the last month or so.
    See ca:HXD and ca:HSD for Canada and the US index funds.
    http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ca%3Ahsd&sid=0&o_symb=ca%3Ahsd&freq=1&time=7
    These ETFs trade just like stocks. Shorting the market has never been easier. The max loss is what you invest, just like any stock long position.

    I continue to expect the current market downturn to last for some time. It has a high probability of going below the March 2009 lows and may well end up being a drop worse than what we saw in 2008.

    The other alternative is to…just get into cash and preserve you hard earned savings.

  7. Wooo this post is EXCELLENT! I love the way you put the US budget in an «everyday image». This would be a really nice way to explain to US citizen why they are in deeper trouble day after day.

    They should try a family therapy, take time to understand each others needs and find a way out… together.

    But a family therapy on a country size… mhhh quite hard to manage, even for Jo Frost…

  8. Mr & Mrs Canada are actually doing fairly damn good in comparison. Federal debt is about $510 billion or $15,200 per person. US is about $40,100 per person.

    Also Mr. Canada was a bit smarter and helped with his parents retirement planning years ago so CPP isn’t underfunded. That only leaves OAS as an underfunded and that program is significantly less generous than Social Security so it has less of an underfunded liability.

    Perhaps the only wild card in Canada’s situation is health funding. I’ve yet to see an estimate of what the baby boomers will do in regards to driving up costs. Yet it will likely be a fraction of what the US will spend since our health care costs per person are significantly less than theirs (the benefit of having a system where your health care providers are not trying to make a profit off of you).

    Tim

  9. The U.S. has to get over their ego about being world protector for a little while and sort out the problems at home. They always talk about being the greatest place in the world etc. A few months ago, I was talking to my father and basically summed it up. The U.S.A.is the flashieest nation in the world. Whether they have it or not, they need to show it. I have been there many times, visited relatives, and I am always amazed about the hang up with ones ‘status’. It is more important where you live, what you wear, what you drive, who you know, than who you really are. I heard a line years ago, defining the definition of Status, Know it all, show it all, Owe it all.

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