Simple Debt Understanding

In various bloviations regarding the approaching debt limit of the United States the president has at times mentioned that Americans can’t or don’t understand it because they just can’t contemplate all the complexities and has also mentioned that his desire for greater government revenues is supported by the American people because they understand the importance of the debt limit. Being American and all, let’s take a look at my understanding of the debt limit and see if we can put it in context, in a way in which I can understand.

The current national debt is roughly 14.5 trillion dollars. This year’s budget consists of revenue, almost all from a myriad of taxes, which amounts to about 2.4 trillion dollars. The government plans to spend about 4 trillion dollars which means that 1.6 trillion, about 40% of that spending number, must be borrowed. For this understanding, the most common asset in a person’s typical portfolio is made up of real estate. For the United States, real estate estimates are all over the place and the government maintains a Federal Excess Properties web page but no prices are listed, most guesses place land values (almost half of many western states and less in eastern ones) of about 250 billion dollars and let’s value each of the 12,000 excess federal buildings at generous 2 million dollars each and add a billion dollars to be round, leading to a government saleable holdings assessment worth roughly 275 billion dollars.

For the sakes of translation to the limited mind like mine we’ll compare the government’s accounting to a typical household. This household has a combined income of 100,000 dollars. If this household would manage their finances in a manner similar to the federal government they would spend 166,667 thousand dollars. Basically they spend every penny of their income and then buy an Audi A7 after they run out. Their shiny new Audi A7 is in addition to the 604,167 dollars in debt that they have at the beginning of the year. Think of it this way, they bought houses and things amounting to about $600k over the years to this point. But, they bought in a bad neighborhood or something and that $600k in debt led to a valuation in assets of only $11,500. So, for all their debt this household basically has nothing to show for it. If that isn’t a definition of untenable, then the dictionary is lacking in specificity.

Presented to advocates of big government no doubt the example above would be dismissed as simple, unserious and illogical. This is because of the fact that the example is entirely logical and easy to understand. And because of that, those who dismiss only it can only disparage in an attempt to discredit it or the person who made it. A smug response mentioning an absence of fancy words doesn’t mean anything other than lacking a need to hire an accountant or attorney at several hundred dollars an hour to explain the exact same thing.