Captain Rick: If the U.S. Federal Government was in control of your household budget, you would be in serious financial trouble! I have prepared this simple comparison to show you why:
Annual Financial Statement of the United States of America:
U.S. Tax revenue: $ 2,170,000,000,000
Federal budget: $ 3,820,000,000,000
New debt: $ 1,650,000,000,000
National debt: $ 16,571,000,000,000
Interest on the National debt: $ 222,800,000,000
Recent budget cuts: $ 38,500,000,000
Let’s now remove 8 zeros and pretend it’s an annual household budget:
Annual family income: $ 21,700
Money the family spent: $ 38,200
New debt on the credit card: $ 16,500
Outstanding balance on the credit card: $ 165,710
Interest on the credit card: $ 2,228
Total budget cuts so far: $ 385
What would happen if the bank froze your credit card, preventing more debt?
Can you imagine how bad your budget would be if you were spending $16,500 more each year than you received in income? The interest on your credit card balance would be $2,228 this year and would be added to your massive balance of $165,710. Each year your debt is growing larger at a rapid rate.
Now, suppose your bank lost faith in your ability to pay your balance. Its easy to guess that your bank will freeze your credit card, allowing no further debt. How will you pay the $16,500 in expenditures that were beyond your budget? How will you make your loan payments, or even pay the $2,228 in interest on your credit balance? You would probably be left with one choice…declare bankruptcy. Luckily, you would have the U.S. Federal Government (Uncle Sam) to excuse your debt and allow you a new financial start.
What would happen if the bank froze Uncle Sam’s credit card, preventing more debt?
The situation with Uncle Sam’s budget is identical to yours, only exponentially larger. However, there is a large difference in who controls the credit. Uncle Sam’s debt is not held by a bank. It is held by a large number of investors, investing firms and countries all around the world. Japan and China hold a large portion of America’s debt. It is highly unlikely that all of the creditors would freeze Uncle Sam’s credit all at once. But, supposing one day China or Japan lost faith in Uncle Sam’s ability to repay their investment…or even the interest on it? Its easy to guess that they would stop further investments in the U.S. federal government.
When a large enough source of new investment is stopped, how will Uncle Sam finance America’s programs which count on $1.65 trillion of borrowed money each year? How will it repay its debt to investors…or even pay the $223 billion in interest on the balance? Unfortunately bankruptcy is not an alternative for Uncle Sam. There is no bigger entity to bail it out or give it a fresh financial start. Its only remaining option will be to reduce payments to various programs so that it stays within the limits of new debt which can be sourced. It could also mean that the U.S. would have to default on its debt owed. This in return would most certainly stop most, if not all of America’s creditors from making further investments. This would worsen the situation and virtually force America to live within its budget, drastically slashing its programs by $1.65 trillion per year. Programs like Social Security, Medicare, Medicaid and Defense would most certainly be significantly affected, as they are the largest budget items. Such massive cuts would most certainly cast America into a deep recession, probably far worse than the Great Recession a few years ago.
Captain Rick’s Solution Scenarios
Maintain Current Course of Deficit Spending with only small, token reductions:
This is not an acceptable solution. It will lead to failure of America’s financial system within a few years. The cost of America’s entitlement programs like Social Security, Medicare and Medicaid are growing in size at an astronomical rate. In a very short time these three programs will consume 100% of all Federal Tax Income, leaving nothing to support the entire balance of the government without deficit spending. With this course, its not a matter of IF the world’s creditors will cut off America’s credit…but WHEN.
Balance the U.S. budget within 10 years:
This is the course America must take if it is to survive. The Fiscal Cliff had a goal of cutting half of the deficit spending 10 years. That was a good start, but congress cant even achieve it. Congress continues kicking America’s debt can down the road, agreeing on allowing only token spending reductions and tax increases. America must do better…soon!
It will require major spending reductions affecting all programs and tax revenue increases across the board. It will also require significant entitlement and grant program reform. The days of Uncle Sam handing out money with a blindfold on must end soon.
Does America have the ‘guts’ to make these sacrifices? Time will tell…but time is running out quickly. I hope for our children’s sake that America gets its act together soon or our kids will likely find themselves living one day in a third world country.
I welcome your comment and hope you will share this with your friends via one of the means I have provided. Together, our voice can make a difference.
U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/