'Good Neighbor Sam' Shows How U.S. Debt Bankrupts Us

IBD Editorials ^ | March 4, 2011 | CHRISTOPHER J. CONOVER AND MARK J. PERRY

[Kaslin]

If you're like most people, a billion dollars is an unimaginable amount; a trillion is even worse

To understand the desperate fiscal situation we face as a country, it might be easier to imagine the U.S. as a single household.

The nation's annual income (GDP) is about $14 trillion; divide by 112 million Americans to get a more comprehensible figure of $125,000 income per "U.S. household."

So let's imagine someone named Sam with $125,000 in annual household income. The nation has existing debts of $33 trillion: $16 trillion in personal, private-sector borrowing, and $17 trillion in total debt from all levels of government.

So let's give Sam's household existing debts of $295,000. Leaving aside these government debts, the nation's net worth is $55 trillion, so analogously, Sam would have a net worth of $491,000.

Government spending at all levels currently absorbs 46% of GDP, so imagine that Sam has a budget-line item called the Good Life Fund (G Fund for short), which he uses to pay for his children's education, some health care and other activities that seem worthwhile.

The "G Fund" absorbs 46% of Sam's yearly budget (including amounts he pays for the interest on past "G Fund" debts).

But currently, government revenues cover only two-thirds of government spending. In our tale, this implies that after all of Sam's other spending, he really only has about 31% of his income left over for the "G Fund."

Essentially, he's been borrowing the other 15% so that he still can devote as much as he wants to the "G Fund" without cutting any further into personal spending. Sam is spending beyond his means; this cannot continue indefinitely.

[ataDude]

GDP is NOT the government’s income. Tax receipts are... which last I heard, were about 2.5 trillion a year... slightly short of the 3.5-3.7 trillion a year that we are spending.

[oldbrowser]

All of these years, the financial illiterates in the legislature have been irresponsibly squandering the immense wealth of this country as if it was unlimited.