Posted by Tim Stobbs on February 5, 2010
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.