Ah, What’s Another Trillion?

Financial education reveals the truth

I believe most would agree that the U.S. economy is out of control. QE (Quantitative Easing) 1 and QE 2, where the Federal Reserve printed billions of dollars to “stimulate the economy,” had little-to-no effect… other than substantially increasing our national debt.

Since QE 1 and QE 2 did not work, what is the Federal Reserve’s solution?

Let’s do the same thing again! So stay tuned for QE 3.

Unfortunately, the numbers that the Fed and the government throw out have grown to such staggering figures that the average person has a difficult time comprehending what those figures really mean. They love to make it complicated and keep people baffled.

So let’s simplify those numbers and bring it into a perspective that most of us can understand.

The Federal Reserve and Government Figures:

1. U.S. Tax Revenue
The annual amount the government collected in taxes from taxpayers
2. Federal Budget
The annual amount of expenses that the government has budgeted to spend
3. New Debt
The amount of debt newly acquired in a year
4. National Debt
The existing past debt that has not been paid off
5. Recent Budget Cuts
The amount of budgeted expenses that the government will eliminate in a year

Now, let’s pretend that these are the numbers of a family’s annual household budget. We cannot possibly think in terms of these enormous numbers so we’ll remove eight (yes, 8) zeros. The household budget would look like this:

Household Budget with 8 Zeros Removed:

1. Annual Family Income $21,700.00
2. Expenses Spent by Family $38,200.00
3. New Debt of Credit Cards $16,500.00
4. Outstanding Balance on Credit Cards $142,710.00
5. Total Budget Cuts $385.00

This poor family is in a boatload of financial trouble.

First of all, their expenses are 176% of their total income. On top of that, the new credit card debt they’ve racked up this year is another 76% of their annual income. Their total expenses are 252% of their total annual income.

They are spending 2 ½ times more than they earn. But that’s not all. The outstanding balances on their credit cards, not including their new debt, are 6 ½ times the amount of money they make per year. They would have to work 6 ½ years (and not pay one dime for any current expenses including food, shelter and utilities) to pay off their old debt.

Ah, but this family has it figured out. They decided to make drastic cuts to their expenses. Yes, they are going to reduce their annual expenses by $385.00.

It’s not rocket science to understand that this family is now homeless or mooching off of other family-members. They are most definitely bankrupt.

And what’s the only difference between our government and this misguided and financially-reckless family?

The government, via the Federal Reserve, can print their own money. They can increase their debt and expenses, not increase their income and never pay back their loans.

If you or I did that… we’d be in jail.

And if you look at how our government and Federal Reserve are financially running this country into the ground – it is criminal.

If this worries you, it’s time to increase your financial literacy and be aware of what’s going on in our worldwide economy. For help, check out our free resources and financial education community here.

Original publish date: September 13, 2012