Below Crush Depth

Posted: October 31, 2011 in Economics, Politics

Just in case anyone forgot about the other elephant in the room (one of many, actually) while attention turned to Europe’s financial shell game, Occupy Wall Street protests, and (justified) preoccupation with the 1%, here is a comment by Barstiat at Clusterfuck Nation (stolen and quoted ruthlessly) that puts U.S. Federal debt into useful perspective:

Here is why S&P downgraded the US credit rating.

  • 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 cut: $38,500,000,000

Now 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
  • Total budget cuts: $385

I did a couple quick searches to vet the numbers but was unable to find a matching source, though numbers found at the Congressional Budget Office were fairly close. (Just trying wading in at that site and finding the info you seek. G’head, I dare ya.)

The eight zeros lopped off represent $100 million in Federal debt to every $1 in household debt. Since the billions and trillions contemplated in the Federal budget lose coherence — they’re simply too large to be meaningful any longer — let’s deal instead with household numbers, which folks can still get their heads around.

So you’re already $142,710 in debt and racking up an additional $16,500 on the year but you only cut back on yearly expenses by a measly $385. No reasonable individual or household could possibly believe such lopsided numbers are responsible. Your credit would be frozen long before reaching this desultory state and your standard of living would plummet. Of course, no one wants to give up any of the trappings of modern life, so you plunge into further indebtedness, which will eventually become someone else’s problem. Remember, however, that the U.S. government runs its own money-printing machines, abetted by banks that loan into existence even more money, resulting in a scenario that we (the people) owe more money than exists or ever will. Nice conjuring trick. In similar fashion, lots of recent college grads are discovering that school debt assumed to finance their educations is not even remotely correlated to their earning potential in the current economy, reinforcing the mistaken notion that higher education is essentially vocational training. The likelihood of ever being financially whole is now like the telescoping hallways of nightmares, receding from view no matter how fast you run.

Many individuals and nearly all governments (Federal, state, county, and municipality) are now under such crushing debt loads that they can no longer reasonably contemplate functioning according to the standards understood and enjoyed for several generations now. What happens next is still unclear, but various types of implosion are to be expected, such as an avalanche of foreclosures and individual bankruptcies, defaults on sovereign debt, and corporate bankruptcies (such as today’s announcement about MF Global). In short, we’re in too deep, below crush depth, which can only have happened when notional wealth disconnects and unlinks from reality, which describes much of modern civilization.

  1. rg the lg says:

    Thanks …

    Copied this (with credit, of course) to my on line Economics Class!

    I have something similar already, but this is about as blunt as possible!

  2. Gweb says:

    This reminds me of a conversation I had the other day with my dry-cleaner. We were of course talking about the economy, and he said something about looking forward to when the housing market bounces back. I said that the housing market and in fact the entire market were NEVER going to bounce back, that there’s simply too much debt and that we’d entered a period of terminal decline. He looked at me somewhat quizzically and said, “Well, somebody’s got to build all those new houses we’re going to need!” It’s really hard to get one’s head around the concept that it’s over. Like OVER over.

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