US Income versus Debt: Broken down to “normal” numbers.

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I cannot believe that anyone is seriously considering allowing the US Federal Government to borrow even more money.  I intend to reduce the income of the US to “normal” numbers, as in, keep the ratios of borrowing, spending and debt the same, but reduce the actual numbers, so that people can grasp the magnitude of the problem.

First, lets list the actual dollar amounts, in Billions of dollars..

• $2,100B total estimated income in 2010
• $3,400B total estimated expenses in 2010
• $14,000B total US debt
• $386B in interest payments on the debt above. (and included in the expense sheet)

Now, assume a family of four, in their home, running their lives.  Total home income is $100,000 a year.  By the same income to expense ratio, this means this family is spending over $162,000 a year, which means running up credit cards, and taking out loans just to cover this.   Plus they already owe $700,000 in debt, for their home, and any current loans and credit cards.  The interest on their existing loans, credit cards, et al, is over $19,000 a year.

One parent wants to go get another credit card to keep paying for their kids to go private school, buy groceries for the kids, etc.  The other parent says “No way, we need to get our spending under control, and stop living outside our means, even if it means doing without certain things! Sell the cars! Move to a smaller home! We can’t keep living like this!”

Which parent is the responsible one?  This does mean, however, that the kids won’t get new cars for graduation, means a few nights of cheap ramen noodles, and a few other “uncomfortable” things will happen.  But if that household continues, as is, then in the not-so-distant future, bankruptcy awaits.

Now, does this mean that family is in danger of defaulting on their loans? It is likely, if they do not change their spending habits.  Also, since there is still a decent income, you can easily avoid that by reducing your expenses to less than your income, and using the excess income to pay down your debt, thereby reducing interest payments and eventually restoring fiscal sanity to the household.

All my numbers came from US federal government sources, and a calculator to determine the relative ratios for the monetary levels involved.  I used the 2010 US federal budget for the income and expenses, as well as the interest payments.

In summary, here are the “normalized” numbers for the US debt, if it were a home with 100k yearly income.

• $100,000 income
• $162,000 spending
• $700,000 in loans and credit cards
• $19,000 in debt interest (included in the spending values)