Okay, just a tiny part. But you do own some …
The topic came up at the dinner table again this weekend, when someone asked me to talk about the deficit and the debt.
So many people are dazed by the magnitude of the numbers today … who thought we’d ever be talking in trillions? And they’re confused about what each one is … the deficit and the debt … and want to know if they should care.
What complicates matters is that many use the words interchangeably, including many politicians. I don’t know if it’s because they’re confused about the difference themselves or if they’re simply happier keeping you off guard by confusing you. Truth is, the two things couldn’t be more different.
So what is the difference?
The “deficit” is like what happens when you have a certain amount of income for the month or year, and you run out of money before the period is over. It’s the shortfall. You and I might have to scramble to figure out how to close out the month. The U.S. Government just borrows more money and puts it on the tab.
That tab is what’s referred to as the national debt. It’s the same as the big number at the bottom of our credit card statements. It’s the accumulation of what we owe to others.
Let’s put it in perspective. With an accumulated debt level that just went of over $16 trillion, that represents about $50,800 for every man, woman and child in America. You say you’re part of a family of four? That’s over $200,000 of debt that you and your family are carrying … without even knowing it.
So, should you care? No one’s going to pull $50,800 out of your bank account … or come to the door with an invoice, are they?
Well, in a way they are.
We owe a lot of money to other governments. And some are not exactly our best friends. If one ever decided it wanted to call its loan, it would cause more than a hiccup to our economy.
And What Are the Options?
One solution might be to go to the equivalent of a “loan shark” who offers money at a much higher interest rate, because as a borrower we’re definitely over a barrel. If we had to pay high interest rates … like you do when the bank bumps your rates up seemingly arbitrarily from 13.9 percent to 29.9 percent … you’d have to dig much deeper into the available income to pay the interest alone. And you’d have less left over for other things.
So how else could the Government get more money? It could either get it from taxes or it could print it.
If the Government raised taxes, that would be the equivalent of coming to you with an invoice.
If the Government let the printing presses run wild, the currency would devalue but they’d have enough dollars to pay the outstanding credit card tab. In that case, whatever you’ve put aside for retirement or for any other purpose would suddenly be able to buy much less. That’s the same as sucking money out of your bank account.
Or, using all the fuzzy math and manipulation we’re seeing these days with budgets and statistics, our politicians could simply continue to kick the can down the road. Rather than take responsibility for past actions and deal with some unpopular pain today, it’s much easier to let your kids and grandkids pay it back. They’d be paying debts accumulated years before they were even born. What an inheritance, huh?
So, no, you don’t have to become an economist and go all wonky over macro- and micro-economics. But in these articles, we talk a lot about how the linchpin of getting control of our finances is personal responsibility.
Desperately Seeking Responsibility
Where’s the personal responsibility at the national level? Listen carefully to smooth-tongued politicians and see which path they’re trying to lead you down. If the plan isn’t to deal with things head on … but instead counts on presenting that invoice to you as tax hikes, sucking money out of your account in the form of inflation, or sending the invoice forward to your kids … don’t vote for him or her. Vote instead for someone who will.