US Budget for Dummies....

It's not a household budget.

Now what?

If it were that simple, W would not have insisted on a revenue cut, and more spending on the "credit card".

Even his dad has to raise revenue, no its just politics.

hamilton

I always like to divide by the population. ~333 million = 1/3 billion So another ~$4.8k per person.. If I did my math correctly. Dang! I figure I gotta cover my family, so that another $20k.

I think we need the same approach to both energy and the budget... All of the above! We gotta phase out all of B and O's tax cuts. And all the gov. gets a hair cut, including defense.

Say speaking of energy and defense, if we (the US) become a net energy exporter. Then don't we want to get out of the middle east. If it blows up, and energy goes up it's then a net win for us?

George H.

It's your party that said "deficits don't matter," so why all the fretting? And that last joke of a candidate tried to bribe his way into the WH by pr omising more spending on special interests than they could handle.

So far, it makes sense. But, unlike a household budget, the government has a few things they can do about the first line item: Annual family income.

They can increase it across the board. And risk finding the other side of the Laffer curve. They can plug loopholes, increasing the revenue from a few sources that are relatively insensitive to tax rates and keep rates low for economic activity that might otherwise disappear or move offshore.

Unlike a family, there's not much flexibility with the second item. Dad might tell the kids that they aren't getting new shoes this year. And we'll be eating more macaroni and cheese and less filet mignon. Nobody is going to vote dad out of office.

That $142,710 isn't like credit card debt. Part of it is, but part of it is like a car load or a mortgage. And in that sense, a $142K mortgage isn't completely out of line with the families income.

Oh yeah. There is something we can do about the revenue as well as the outstanding debt balance. We can print money and inflate our way out of the mess. That $142,710 is fixed. If we print enough to bring spending and income together, we can just give the middle finger to the people holding the outstanding debt. Sure, no one will ever loan money to us again. Big deal, we just print more. The dollar tanks? Great! That just makes our exports look cheaper around the rest of the world.

So, in the final analysis, its a lot more complex than your hosehold budget.

We're probably not that close to the Laffer curve knee, best guess. The Reagan tax regime saw increases in revenue and was a lot higher in all dimensions.

That's where this gets *REALLY* weird. U.S. Federal currency is used as a store of value world wide. There's no way to make that map to anything in a family budget. People worldwide hoard $100 bills because they believe in those more than anything local to them.

So you can *literally* print $100 bills - a lot of them - and all it might do is cause an increase in money velocity . Indeed, Scott Sumner believes this is why we had a recession - the stock of $100 bills ran down. Literally.

If you realize that it is a conceit to think that *all* the economy is above board and measured, it might make more sense. The currency stock is 75% $100 bills, and they all but never get used for above-board cash transactions in the US. I had that thought myself when the government started limiting cash across the border to $10k and we had a sharp, quick downturn.

but in the case of the Fed/Treasury, that $142k amounts to a futures contract against future growth. So it's more analogous to a guy with a business 35% into out a $300k line of credit.

That's... unlikely, but there are times I wish they *wouldn't*. Right now, they pay us to to take their money. WTF???

We don't do "cheaper"; we generally do "better". That works out fine. We used to do cheaper when we were competing with Britain; it worked out great.

It's really, really hard to understand what government debt means and how it works.

The difference is the family owing 142K on a credit card probably pays a high interest rate of 10% or more, while the US government pays 2.5% or less which is about 10% of the budget. Same for the family if they could get 2.5% rates. The question is when will interest rates rise?

-Bill

The latter is the real problem. A small rise in interest rate will take a big chunk from the income. A rise of 1% on that 142k loan means being able to spend $1420 less per year or 6.5% of the annual income. See how quickly a big loan eats into your income when interest rates only move a little bit?

Its all a bit academic because no sane credit card company or bank would lend close to 7 times the annual income to someone.

Can the household print money? Can the household borrow at .01%? (3 mo. T-bills) What are the prospects for increasing revenue/income? Do you think it's that simple? Where have you been the last 30 years? Fair enough though, you did say it was for dummies.

The first online mortgage calculator I tried offered me almost 8 times my annual income.

The 8 times loan is given with a house usually worth 125% of the loan value as collateral.

Loans to the government have "Full faith and credit" and that's getting weaker everyday. Remember Greece.

An individual can have a downturn go bankrupt with the US safety net under it. If the economy has a downturn affecting tax revenue, who's there to prop up government.

That's why the Fed should not be so far in debt, like a family.

Failure affects hundreds of millions not just one family.

Mikek

Doesn't that preclude the possibility that this family may get its $100 printing press out. Or even a bit of quantitative easing?

Less simplistic thinking?

Why should as long as the government is borrowing from itself. The interest rate the government pays is artificial. The real interest paid will be inflation.

So what is the annual rate? Based on that alone it would be 85%.

If the annual rate on your credit card was 0.17% then would you consider these numbers acceptable?

That would be nice.

That is the annualized rate. It's just calculated daily.

My initial comment was that the Federal budget is fundamentally different from a family budget. I like Dave Ramsey too, but he's off base on this particular thing.

Well, Paul, where have you been hiding since your last post to b...general news group some years ago? Good to see that you're still around and haven't lost your edge.

I just want to mention another benefit our gov might accrue from printing more money and thus firing up inflation: the added taxes from capital gaines where the purchas price is not computed with current $ value. What a racket that is for the Treasury!? And they don't even need a legislation for it by Congress.

t:

g? And that last joke of a candidate tried to bribe his way into the WH by promising more spending on special interests than they could handle.

Out of context. Deficits didn't matter when the private economy was growing faster than the government--revenues catch up.

No one ever imagined government leaping so far ahead of a 2% economy, and continuing to grow at 7%. That's deadly.