Government Finance 101

Here's a great explanation of the problem that even a knuckle dragging redneck like me pretty easily understood:

Food for thought..... This puts it into a much better perspective and is the
same for many countries in Europe ...

Why the U.S. was downgraded:

* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let's now 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
* Total budget cuts: $385

Got It ?????

OK now Lesson # 2:
Here's another way to look at the Debt Ceiling:

Let's say, You come home from work and find there has been a sewer backup in
your neighborhood....and your home has sewage all the way up to your
ceilings.

What do you think you should do ......

Raise the ceilings, or pump out the excrement?

Your choice is coming Nov. 2012

If you only pump out some of the crap, it will still stink!!

Not so easy. If the family wasn't making enough money why didn't they increase their income????

Hey, you forgot the part about that household spending $6800 on guns per year!

How much of what the family spent was on RAD or HAD? Talk about deficit spending.

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Originally Posted by thebigspendur

Not so easy. If the family wasn't making enough money why didn't they increase their income????

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They did. They even bought their own printing presses to make their own money but it still wasn't enough

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Originally Posted by hoglahoo

They did. They even bought their own printing presses to make their own money but it still wasn't enough

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Too bad. They approached it from the wrong side. They should have gone out and gotten 2nd and 3rd jobs to bring in more money.

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Originally Posted by hoglahoo

They did. They even bought their own printing presses to make their own money but it still wasn't enough

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http://i.imgur.com/LHzTR.png

FIFTY DOLLAR BILL! FIFTY DOLLAR BILL!

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Originally Posted by thebigspendur

Too bad. They approached it from the wrong side. They should have gone out and gotten 2nd and 3rd jobs to bring in more money.

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Oh well. Maybe bigger government can bail them out. Like china

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Originally Posted by 1OldGI

* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385

Got It ?????

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I did and it makes perfect sense to me. If the credit card company is happy to lend me another $16,500 and simply add it to the $142,710 that I'm supposed to pay them one day, I say who am I to stop them.

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Originally Posted by 1OldGI

Why the U.S. was downgraded

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Downgrade, shmowngrade - the willingness of the creditors to lend more didn't change, so let those who care about semantics worry about the downgrade.

The most troubling thing is that if these numbers were an actual person, I wouldn't care. I have no stake in what someone else does with their money and they can be in debt for their entire life if they choose.

What I don't understand is how the government, who isn't using money of their own (aside from the fact that they illegally print it), can get this bad. You would think at this point (actually, over 20 years ago), there would have been some sort of up-rise.

My completely uninformed mind (honesty) is convinced the US will soon experience hyperinflation and controlled devaluation of our currency until all hell breaks loose. I just doubt the USD will be the world "reserve currency" for much longer and these will be the results.

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Originally Posted by ats200

The most troubling thing is that if these numbers were an actual person, I wouldn't care. I have no stake in what someone else does with their money and they can be in debt for their entire life if they choose.

What I don't understand is how the government, who isn't using money of their own (aside from the fact that they illegally print it), can get this bad. You would think at this point (actually, over 20 years ago), there would have been some sort of up-rise.

My completely uninformed mind (honesty) is convinced the US will soon experience hyperinflation and controlled devaluation of our currency until all hell breaks loose. I just doubt the USD will be the world "reserve currency" for much longer and these will be the results.

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I'm afraid most folks need to look in the mirror for the answer to your question. Govt didn't get so big because the Presidents (former and present) felt like doing it. The public expects more. yea they want it cut until it affects them. This whole situation makes great talking points however most of the increase was done to answer issues that have come up over the years.

Start making cuts and people won't like it. Terrorize them by saying do it or else is just half the story.

There is always a solution unfortunately the polarization in this country won't allow a fair solution to happen.

I agree. Most people can admit that it's nice to benefit from the government and there are many people who truly rely on the government to live. When the decisions of the government directly affect someone's life, they vote in their own interest.

I think this is why we keep getting more and more government programs - because someone proposes it simply to get votes of those who would benefit. It's more or less a form of corruption but I have to agree that it's the fault of the public that the government became so large.

For the government to earn more they have to raise more tax dollars. To do this they have to raise tax rates. Or create a more business friendly environment, so that individuals can create more wealth. Then then they pay more in tax, even at a lower rate.

The problem we have is that our governments here in the states reflect how many US citizens spend. That and a feeling of entitlement.

I feel horrible for the younger generation. I am 45 (Gen X) and have 2 Gen Y children who are going to be punished for the spending of the last 50 or 60 years. Yet those who continue to spend money that is not there have little real clue as what they are doing to the working class. After all they have millions to leave for their own children.

I should run for US House of Representatives.

Jeff

The Federal Government's not a household, and you can't judge its financing based on household financial rules. The simple fact is, the folks with the most money, and the folks who control the most money, big banks, financial investment groups and the like, would rather lend their money to the Federal Government than to private businesses at the moment. That's why your yield on your T-bills are so low. People are buying them now at close to the value they'll be at maturity. So not only would these folks rather lend money to the government, they're not that chuffed about inflation either.

Perhaps a simple lesson about the evolution of government and government finance would be in order. We don't have to go that far back, not even to tribal, hunter-gatherer times. The era of feudalism is sufficient. Back then, if your government, which was just your local lord or king, decided to do something, he just took whatever he needed to do it from whoever had it that he had authority over. Your lord decides he wants to throw a party for his kid getting married? He takes the food from the farmers and butchers. And he doesn't give them anything back for it either, maybe some scraps of food while they're working if they're lucky, and if they try to resist, he sticks 'em on the end of a spear. Same for everything else he needs for that party, clothes, decorations, entertainment, etc. Of course, even back then, government wasn't always corrupt and wasteful, rather like today, just mostly corrupt and wasteful. Sometimes they did something worthwhile that everybody benefited from. Occasionally, they'd build roads, or clear access to water or other resources, or establish schools and hospitals.

Of course, money, or finance, makes the story somewhat more complicated. When people used bits of gold or ious for gold as currency, the government just took the currency, instead of the resources and manpower itself. That way, they could pay for the resources and manpower they needed to do what they wanted to do. As I'm sure anybody can tell you, paying for things gets you better service than threatening people with pointy sticks. But if there isn't any currency to take, governments are perfectly happy to resort to the pointy-stick method of resource acquisition for their projects.

Now, smart governments, when they took the gold or ious for gold as taxes, were perfectly happy to accept either, but when they spent, to buy that roast suckling pig for the party, let's say, they only spent in ious. Their ious. The ones they printed. They put the gold itself in a vault. And they eventually started printing more IOUs than they had gold, because they knew that most people didn't really want the gold, they wanted the goods and services they could buy with the gold, and the iou was perfectly good for that, so who cares, really, so long as everybody's happy? Printing more ious than we have gold or than we collected in taxes means we don't have to collect as many taxes, which makes people less mad at the government, and if nobody notices, then so what? Eventually, they even decided to stop exchanging their IOUs for gold at all, because it turned out that actually trying to make those ious have some semblance of a relationship to gold was responsible for a lot of unnecessary recessions. The economy needed more money than gold supplies could keep up with. And that's where we're at now.

So when we look at the government deficit, we have to realize that taxes are just the government taking it's own ious, and spending is just the government printing more ious. The "deficit" is just the difference between taxes and spending, when spending is bigger, and the accumulated debt is just the amount of base currency, that is, currency not backed by private debt, in the economy both in circulation and not in circulation. Reasons for maintaining a deficit, or growing the debt include maintaining prices in a growing economy, where otherwise the amount of money available to be spent remains the same, yet the amount of goods and services to be bought with that money increases, lowering prices, which hurts investment. Also, stimulating production in a stagnant economy by provoking some inflation. You can use some private debt to do that, which is what lowering interest rates is all about, except when interest rates are already at or near zero. But the interest on private debt creates its own pressure for increasing base currency, as the money created by private lending is destroyed as that loan is paid back.

Besides, even if you think there's something flawed in that explanation I gave above, and you just don't buy it, you'd have to admit that you'd have to be stupid to not take out a zero-percent interest loan if it were available to you. With yields on T-bills as low as they are now, that's essentially the interest rate they're getting. Even yields on the 30-year bill are down to 3.1%, when this time last year yields were as high as 4.71% and in 2007, the year before the crash, yields got as high as 5.28%. And the yields on shorter term t-bills, which is where the bulk of the borrowed federal financing, is vastly smaller. Current yields on the 1 year T-bill are 0.14%. You have to get as long term as the 7-year T-bill before the yield even breaks 1%.

Just get that through your heads for a minute. Big banks and private lenders, which is who the government borrows money from when it borrows after all, would rather lend to the government for a 14 cent return on a $100 one-year investment than risk loaning it to a private individual for a higher return or buying private stock or commodities with it.

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Originally Posted by thebigspendur

There is always a solution unfortunately the polarization in this country won't allow a fair solution to happen.

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Keeping us divided against ourselves is how they get away with it, the big government leftists vs. the big government rightists. Both are wrong In my oh so humble opinion.

Btw. Why should they(govt) get a second or third job when they can force you to get a second or third job to pay the credit card bills they racked up?

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Originally Posted by nun2sharp

Keeping us divided against ourselves is how they get away with it, the big government leftists vs. the big government rightists. Both are wrong In my oh so humble opinion.

Btw. Why should they(govt) get a second or third job when they can force you to get a second or third job to pay the credit card bills they racked up?

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yes, but were the credit cards used to buy frivolous stuff like fancy duds and expensive jewelry and big vacations or were they used to pay for cancer treatment or put gas in the car to get to work or retrain to get a job?

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Originally Posted by Kantian Pragmatist

The simple fact is, the folks with the most money, and the folks who control the most money, big banks, financial investment groups and the like, would rather lend their money to the Federal Government than to private businesses at the moment.

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It could also be that private businesses aren't seeking loans at the moment.
If I own a bank and businesses are making lots of deposits but not taking any loans, that leaves me with a lot of money over the required reserve amount. In that case I'd be happy to buy securities from the Fed at little interest than let the money sit and collect no interest.

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Originally Posted by HNSB

It could also be that private businesses aren't seeking loans at the moment.
If I own a bank and businesses are making lots of deposits but not taking any loans, that leaves me with a lot of money over the required reserve amount. In that case I'd be happy to buy securities from the Fed at little interest than let the money sit and collect no interest.

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There is not much economic difference between a potential borrower not seeking lenders and a potential lender not seeking borrowers. Both banks and borrowers use the same metric when deciding whether to take out a loan: what are the odds of paying it back? Private business doesn't see themselves as worth the risk to seek out loans and obligate themselves to payments. And go back and look at that yield again. 14 cents on a 100 dollar, one year investment. That's all they're getting from the Feds for lending money to them. How gloomy does your outlook on the prospects of American production have to be to accept a 14 cent per year return on a 100 dollar investment? You might as well have buried that $100 in a tin can in your yard for a year.

I don't blame banks or businessmen for having a gloomy outlook for future production and consumption. I do blame government when it has it within its power to turn things around, and, because it's been bought out by wealthy interests or overrun by ideologues, it fails to do so. There's corruption on both sides of the aisle, but only one party is plagued by both the corrupt and the ideological.

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Originally Posted by Kantian Pragmatist

only one party is plagued by both the corrupt and the ideological.

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The Green party?

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Originally Posted by hoglahoo

The Green party?

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The Greenies aren't all that corrupt. They also don't have any power or influence, which is probably why they aren't all that corrupt.

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Originally Posted by thebigspendur

yes, but were the credit cards used to buy frivolous stuff like fancy duds and expensive jewelry and big vacations or were they used to pay for cancer treatment or put gas in the car to get to work or retrain to get a job?

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I would say that too much has been spent by the family on the neighbors(aid/defense) and also toys for the favored kids. Also IMO, cancer is as much of an industry as it is a disease and it doesnt matter how much retraining is provided if the job is overseas.