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Economic Update: 4/25/11 = Where is our country going???

How to Explain the Current Economic Situation to Friends & Family

Sunday, March 22, 2011, 4:46 pm,

by James B. Driscoll

Given its simple elegance in addressing a question frequently asked on this site,
this post has been elevated from the forums section. It has been updated by
site members driscoll and smith since its first appearance (the
original post can be read ).

I’ve been working on a way to get across to
friends and family how bad the economic situation has become. I find one of the
biggest problems is that when numbers are in the billions and trillions they
are very hard to imagine, and people get this glazed/deer in the headlights
look. So I decided to try to scale the numbers in a way that can be more easily
visualized.

Below is an updated version, with many thanks
to members of ChrisMartenson.com community who suggested changes/corrections,
and particularly to Travlin for rewording much of the message to make it a
better story. Hopefully this version will help convince others of the serious
nature of the US fiscal outlook.

My Troubled Relative 

I need your advice. I have a relative who
is in financial trouble. He makes $50,000 a year, but he spent $74,591
last year, and his prospects of making $50,000 this year look kind of
bad. There’s a good chance he will get a pay cut.

Unfortunately, he’s been overspending for
quite a while and has charged $295,632 on credit cards. He’s been lucky
enough to get low teaser rates, and when those have expired, he’s been able to
transfer the balances to other low-rate cards. So he keeps charging $24,591 per
year beyond his income. If he can’t keep rolling over his debt at super
low rates, the interest will quickly eat him up.

But, that’s not his worst problem. He
convinced his family he was a great investor. His parents gave him a
portion of their income for many years, and he promised he would make regular
payments to them and cover their medical care when they got too old to
work. The problem is, he spent all the money. He also has dependents
who are poor, and he promised to help them out, too. To cover those promises,
he should have $2,372,953 sitting in a bank account earning an interest rate
that keeps up with inflation. But the money is all gone.

So what should he do? Well, his
Republican friends, who say they are responsible with money, have decided he
must really cut spending to get things under control. There are lots of
things he can live without, so they say he should reduce spending by $1,292 per
year. His Democrat friends say that’s too much. They feel it would be a
great hardship for him to cut spending that drastically, so reducing it by $137
should be about right.

So here’s the picture:

  • $50,000:
    Income
  • $74,591:
    Expenses
  • $24,591:
    Deficit
  • $295,632:
    Short-term revovling debt at artificially low rates
  • $2,372,632:
    Unfunded promises
  • $1,292: Republican friends
    budget cuts
  • $137: Democrat friends
    budget cuts

So, what does the future look like for my
Uncle Sam? Do you think he can keep going like this much longer? What
about his family who are counting on the promises he made to them? Do you
see any possible solution other than bankruptcy?

Multiply the above numbers by 47,620,000, and
you get the fiscal picture for the United States Government in 2010:

  • $2.381 Trillion: Revenue
  • $3.552 Trillion: Budget
  • $1.171 Trillion: Deficit
  • $14.078 Trillion: Debt
  • $113 Trillion: Unfunded Liabilities (Social Security, Medicare, Medicaid)
  • $0.0615 Trillion ($61.5 Billion): Republican proposed budget cuts
  • $0.0065 Trillion ($6.5 Billion): Democrat  proposed budget cuts 

Sincerely,

James B. Driscoll

God Bless America

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