Reason why S&P downgraded US, made easy

[easyrider]

Please keep your political coments to yourself as I am just looking at numbers here.


Why S&P Downgraded the US:

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: $14,271,000,000,000
Recent [April] budget cut: $ 38,500,000,000

Let’s remove 8 zeros and pretend it’s a 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: $142,710
Budget cuts: $385

 

[ronparise]

A balanced approach is required to get back to a balanced budget

1) increase income
2) cut expenses

 

[Talent312]

This post is begging for a political discussion. Let's not go there...
But I will say that nothing is that simple.
-------------------------
"There are three kinds of lies: lies, damned lies, and statistics."
-- Mark Twain (attributed to British Prime Minister Benjamin Disraeli)

 

[zcrider]

Thanks for the example easyrider. I like your style.
Yep, our national debt is out of control...We need to make all our leaders take a Dave Ramsey course. :rofl:

 

[JudyS]

A government budget really can't be compared to a household budget. A government has options that are not legal for private citizens, such as creating money out of nothing. Also, much of the U.S. national debt is actually "internal debt," that is, money that is owed from one part of the U.S. government to another part of the U.S. government.

I actually don't think it was the amount of the national debt, or the size of the current deficit, that led to the downgrade. The US government has had high debt for a long time, but the S&P downgrade didn't happen until last summer's stalemate over raising the debt ceiling.

 

[dioxide45]

Why do people have to start this s@#&?

 

[easyrider]

Remember, this is just a pretend senario.

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: $142,710
Budget cuts: $385

Family income is aprox $1808.00 per month

Family buys a car and finances it for 72 months = $600 payment and insurance per month.

Credit card debt = interest only 10% = $165 minumum payment per month

Mortgage at 142K or $800 per month on a 30 year

That adds up to $1565 of expences minus $1808 income. $243 is left to buy food , gas and utilities. This is probalbly a very real senario for people that are unemployed and living on one income or unemployment benifits. With a debt to income ratio as above this person would not be a good credit risk.

 

[Conan]

Government Debt Is Not The Same As Personal Debt

The United States’ total public debt outstanding was approximately $13.562 trillion at the end of the government’s fiscal year on 30 September 2010. As of 4 January 2011, the United States’ total public debt outstanding exceeds 14 trillion dollars.

Despite that near half-billion dollar increase, the percentage composition of who owns the U.S. national debt shown in the chart above is relatively unchanged. On the whole, U.S. individuals and institutions, when including the Social Security, U.S. Civil Service and Military trust funds own 62.2% of the U.S. national debt, while foreign nations own the remaining 37.8%.

Notes
“All Other Foreign Nations” are all those except China (for which we’ve included Hong Kong), Japan, United Kingdom, Brazil and “Oil Exporters.”

“Oil exporters” include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.

The “U.S. Civil Service Retirement Fund” fund is the Federal Civil Service Retirement and Disability Fund. The “U.S. Military Retirement Fund” is the Department of Defense Retirement Fund. The “Social Security Trust Fund” is the Federal Old-Age Survivors and Disability Insurance Trust Fund.

Data sources:
U.S. Treasury Department. Monthly Statement of the Public Debt of the United States, September 30, 2010.

U.S. Treasury Department. Major Foreign Holders of Treasury Securities. (At end of September 2010).
http://www.mygovcost.org/news/

 

[hvacrsteve]

Wow! that is all I have to say, I still have checks left, whats the problem?

 

[JudyS]

Remember, this is just a pretend senario....

Then why bring it up?

I disagree with this thread's whole premise. The US's budget is nothing like a household budget. The US generated over 1.5 trillion dollars out of thin air in the last few years (a.k.a. Quantitative Easing), and can generate a couple trillion more if it needs to. How many households can do that?

 

[geekette]

Remember, this is just a pretend senario.

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: $142,710
Budget cuts: $385

Family income is aprox $1808.00 per month

Family buys a car and finances it for 72 months = $600 payment and insurance per month.

Credit card debt = interest only 10% = $165 minumum payment per month

Mortgage at 142K or $800 per month on a 30 year

That adds up to $1565 of expences minus $1808 income. $243 is left to buy food , gas and utilities. This is probalbly a very real senario for people that are unemployed and living on one income or unemployment benifits. With a debt to income ratio as above this person would not be a good credit risk.

So how is this unemployed family buying and financing a car??
Also not seeing how they got a 142k mortgage.

"very real scenario" My Pony!

I think it unlikely that this scenario family has that much credit debt, also, or that they actually spent that much in one year and lobbed it all to credit. Certainly a Pretend Scenario. :hysterical:

 

[dougp26364]

So how is this unemployed family buying and financing a car??
Also not seeing how they got a 142k mortgage.

"very real scenario" My Pony!

I think it unlikely that this scenario family has that much credit debt, also, or that they actually spent that much in one year and lobbed it all to credit. Certainly a Pretend Scenario. :hysterical:

OK, our son-in-law and daughter bought a house for $180, had a truck that was still under financing and have a boat that is still under financing.......then he got laid off from his aircraft factory job at Cessna when the economy tanked.

That's a simple explanation of how an unemployed person can have financing yet be unemployed. Heck, I even bet you can find some timeshare owners who have timeshares financed, yet they're now unemployed.

 

[dougp26364]

The fact that one can print money while the other can not does not relieve the basic economic principle that one can not out spend their income. Even though the government can create an inflationary state or devalue it's own currancy does not relieve the principle of not spending more than you bring in.

When your out-go exceeds your income, that leads to your downfall. Seems to me we've fallen on hard times lately and, Standard and Poors may be recognizing this reality.

I agree with those who say this is a poor topic for TUG. It will be nearly impossible to keep this from becoming a political thread. I've tried but I'm not sure I haven't crossed the line at some point with this post.

 

[ondeadlin]

Certain topics are inherently political - immigration reform, military involvement, gay marriage, affirmative action and, yes, this one. Calling it non-political is simply playing pretend.

 

[Talent312]

What if, to pay for their new toys, "the family" called upon their neighbors to add a share of their incomes to the pot, deducting their mortgage interest, oil+gas depletion and depreciation of their lawn maintenance equipment, in exchange for which, they'd be offered "homeland security?"

 

[geekette]

OK, our son-in-law and daughter bought a house for $180, had a truck that was still under financing and have a boat that is still under financing.......then he got laid off from his aircraft factory job at Cessna when the economy tanked.

That's a simple explanaation of how an unemployed person can have financing yet be unemployed. Heck, I even bet you can find some timeshare owners who have timeshares financed, yet they're now unemployed.

and I would bet that he made a lot more than 21k.

If my household made less than 30k FOR A FAMILY, I seriously doubt that I would have that much house, that much car, that much debt. I'm not buying it. if I maxxed everything I don't think I could generate tha tmuch credit debt alone.

unemployment is a temporary circumstance for most people. getting this much financing, this much credit, with such a low income for a family, is unlikely. most creditors will not shoulder that much risk of nonpayment.

I'm not referring to those with higher incomes that have temp setbacks. I'm say that his example doesnt wash with me UNLESS this 21 k is "unemployment income" vs the family's regular expected income.

 

[easyrider]

The pretend family would be able to sell the car at a loss and buy cheaper transportation to help get by until better times. So they reduce their car debt by half and no longer have a car payment.

Now they can afford to eat something other than mac & cheese, but are still in need of income.

They luck out, their uncle decides to help pay the mortgage.

What do they do with this extra money. They should pay the credit card down but thats no fun. Instead, they go to Hawaii and come home broke. They stay at a TUG recomended timeshare and had a blast. Now its back to pretend reality.

 

[easyrider]

and I would bet that he made a lot more than 21k.

If my household made less than 30k FOR A FAMILY, I seriously doubt that I would have that much house, that much car, that much debt. I'm not buying it.

21K a year is just about what unemployment pays to a high earner. Even though the person was making 60K a year, this person now lives on the high unemployment rate, which has been extend indefinitely.

 

[geekette]

The fact that one can print money while the other can not does not relieve the basic economic principle that one can not out spend their income. Even though the government can create an inflationary state or devalue it's own currancy does not relieve the principle of not spending more than you bring in.

When your out-go exceeds your income, that leads to your downfall. Seems to me we've fallen on hard times lately and, Standard and Poors may be recognizing this reality.

I agree with those who say this is a poor topic for TUG. It will be nearly impossible to keep this from becoming a political thread. I've tried but I'm not sure I haven't crossed the line at some point with this post.

I agree with you on everything here.

 

[ampaholic]

Wiki has a good section on Public Finance at: http://en.wikipedia.org/wiki/Public_finance

Anyone who wants to learn how it works - can. Just as anyone who wants to learn how timeshares work - can.

Many just don't. (I hope that isn't political)

 

[pedro47]

21K a year is just about what unemployment pays to a high earner. Even though the person was making 60K a year, this person now lives on the high unemployment rate, which has been extend indefinitely.

An unemployment person is only paid for 26 weeks in the state of Virginia. and max amount is $378 per week.

The range of benefits $54-$378 per week.

 

[dioxide45]

The US gov't can borrow at near 0%, no family can do that.

 

[easyrider]

An unemployment person is only paid for 26 weeks in the state of Virginia. and max amount is $378 per week.

The range of benefits $54-$378 per week.

In Washington the max is about $600 per week. It was set at 26 weeks but has been extended for those that lost jobs in certain areas. Some of these people have went back for training or education.

 

[Passepartout]

With the above comparison of gov't/family budget. In a family situation, even though there is more outgo than income, in order to seek any resolution, the family still needs to invest in the 'infrastructure' like keeping the roof fixed, and working toward higher income by investing in education and decent wardrobe.

Those who advocate gov't cutting off paying obligations and infrastructure are short sighted. Infrastructure forestalls higher costs later and educating youth ensures higher income and improved living standard or all.

Just had to get my 2 cents worth in B4 it gets closed.

Jim

 

[JudyS]

The fact that one can print money while the other can not does not relieve the basic economic principle that one can not out spend their income. Even though the government can create an inflationary state or devalue it's own currancy does not relieve the principle of not spending more than you bring in....

While this is true in ordinary economic times, it is really not true in a depression or major recession. The US experienced substantial deflation and an increase in the value of its currency in the past few years. $250,000 bought a lot more house in 2009 than in 2007, and a lot more stock in 2009 than in 2007 as well. Because we were in a severe recession, the huge amount of money printed by the US government in the past few years did not lead to inflation or cause the dollar to be less valuable overall than it was before the 2008 bank collapse. (The money printing did cause foreign goods to be more expensive, but dollars still go a long way in buying domestic real estate, products, services, and equity in corporations.)

If the US always ran deficits, I'd be concerned, but the fact is we don't. As recently as the Clinton years, the US was running a surplus. The current large deficits are largely a result of the "Great Recession."

This brings me to another difference between individual families and the US government. The debt-strapped family in your example, Easyrider, would likely look for better paying work. They might move to another state, or even another country, where the economy is better. The US can't solve its current economic problems by picking up and moving somewhere else where the economy is better. The US can only try to improve the economy here at home--and like it or not, the most effective way for a government to rev up an economy is to increase spending without raising taxes. That means either running up more debt, or "printing money."