Fiscal Cliff Simplified and put into Perspective [Archive] - Glock Talk

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Willfulone
12-31-2012, 15:03
Lesson # 1:

* 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 so far: $38.50

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
Remove the crap?

MarinePride
12-31-2012, 19:46
Here's something else to remember:

1. The national debt will never be paid off.
2. The whole financial system is a pyramid scheme, mostly.

DoubleWide
12-31-2012, 20:09
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
Remove the crap?

Move and let the new owner take care of it :tongueout:

UtahIrishman
12-31-2012, 20:51
I tried to explain this, this simply, to a guy at work who is supposedly financially wise. He about blew a gasket when I suggested raising our debt again was the wrong move. "It will ruin us financially" he said. How ironic.

Take the hit and be done with it. We're only prolonging our pain.

glock_collector
01-01-2013, 10:22
Man, your depressing.....

N20ntegra24
01-02-2013, 08:18
LOL I like the change of 38.50. I am still lol over that it helped the idiot in the bay next to me understand extremely well.

cowboywannabe
01-02-2013, 08:37
this is what happens when you elect a community organizer over a businessman.

devildog2067
01-02-2013, 08:43
Let's now remove 8 zeros and pretend it's a household budget:

But it's not. Pretending it's a household budget is an utterly false analogy.

OctoberRust
01-02-2013, 08:51
But it's not. Pretending it's a household budget is an utterly false analogy.

Can you explain why the ops comparison is not as dire as he makes it seem, then?

cowboywannabe
01-02-2013, 08:51
But it's not. Pretending it's a household budget is an utterly false analogy.

actually it shows how messed up our pretend economy is if you were to try to run your own life the same way.

the difference is a person can not print more money nor extort more money from their employer, the federal government can.

kensb2
01-02-2013, 08:51
But it's not. Pretending it's a household budget is an utterly false analogy.

I think the point there is less that it's a household budget, or more the fact that most people can't fathom how much money $16T is. The most I've even been around was several million while I was deployed to Iraq. It's just easier to relate to $38k vs. $3.8T, etc.


ETA: CW beat me to it!

HKLovingIT
01-02-2013, 08:54
But it's not. Pretending it's a household budget is an utterly false analogy.

Elaborate por favor.

devildog2067
01-02-2013, 09:07
Elaborate por favor.
Can you explain why the ops comparison is not as dire as he makes it seem, then?

I'm not saying that we're not in a deep hole. We certainly are.

actually it shows how messed up our pretend economy is if you were to try to run your own life the same way.
But this sort of talk is ridiculous.

The fundamental reason that people buy American debt is that America makes stuff that people want to buy. That's the reason why so much trade is denominated in American dollars.

Our deficit exists precisely because people think that the future productive capacity of the United States is a safe place to park their money. That's why the credit card part of the analogy doesn't make sense. Our federal deficit isn't a credit card--it's money that we lend out cheaper than the rate of inflation.

The one part that does make sense is the part about budget cuts. We HAVE TO cut spending.

The problem there is that the only ones that matter are the three big ones: Social Security, Medicare and defense. Welfare doesn't matter. Foreign aid doesn't matter. NPR doesn't matter. NASA doesn't matter. The budget items that matter are Social Security, Medicare and defense. Using the language of this post, cutting foreign aid is like trying to save $1000 by cutting $0.50 out of your budget.

Dennis in MA
01-02-2013, 09:16
It's also a matter of perspective. The 16T of debt is an issue. . . at the current GDP. Make the GDP 10x what it is now and 32T of debt is of no concern. (Like when Clinton was presidente.)

It's not the amount of debt that's an issue, it's the relation to how big our economy is. Right now, debt and GDP are at parity. Not good.

To use a real-world example, let's say the household income (GDP) is $50,000 per year. I've got a low-interest personal loan for $10K and no other debt.

I think we'll be in better shape come March 1. The Republicans pushed off the spending debate until the Debt Ceiling talks. The President wants to play hard-ball again. I think he'll have a VERY hard time this time. I can see the Republican party unifying over this one.

Atomic Punk
01-02-2013, 09:23
for just a sec i thought i was thinking devildog was off :tongueout: good points to add.

cowboywannabe
01-02-2013, 09:33
I'm not saying that we're not in a deep hole. We certainly are.


But this sort of talk is ridiculous.

The fundamental reason that people buy American debt is that America makes stuff that people want to buy. That's the reason why so much trade is denominated in American dollars.

Our deficit exists precisely because people think that the future productive capacity of the United States is a safe place to park their money. That's why the credit card part of the analogy doesn't make sense. Our federal deficit isn't a credit card--it's money that we lend out cheaper than the rate of inflation.

The one part that does make sense is the part about budget cuts. We HAVE TO cut spending.

The problem there is that the only ones that matter are the three big ones: Social Security, Medicare and defense. Welfare doesn't matter. Foreign aid doesn't matter. NPR doesn't matter. NASA doesn't matter. The budget items that matter are Social Security, Medicare and defense. Using the language of this post, cutting foreign aid is like trying to save $1000 by cutting $0.50 out of your budget.

if a business ran this way what do you think would happen to it? arent investments made in a business based on a business making stuff people want to buy so to speak?

Dennis in MA
01-02-2013, 09:44
Uncle Sam can't sell stock in itself. It has to use the debt markets.

devildog2067
01-02-2013, 09:48
if a business ran this way what do you think would happen to it?

They do. All the time. Lots of business, including some of the biggest most profitable companies in America.

A quick glance at the 2011 General Electric annual report shows that they have something like $11.5 billion corporate debt EXCLUDING the GE Credit Services business (which has more like 450 billion!). The total company net revenues were ~$14.5 billion. If you include the CS side, GE runs a D/E of something like 4.2--there's upwards of 4x more GE debt out there than there is GE stock.

The consolidated statement of cash flows is about a hundred pages, but feel free to slog through it if you like.

http://www.ge.com/sites/default/files/GE_AR11_EntireReport.pdf

Berto
01-02-2013, 09:54
The problem is we're hedging our debt against stuff we aren't making....and we spend a crapload too much $$$.

cowboywannabe
01-02-2013, 10:01
They do. All the time. Lots of business, including some of the biggest most profitable companies in America.

A quick glance at the 2011 General Electric annual report shows that they have something like $11.5 billion corporate debt EXCLUDING the GE Credit Services business (which has more like 450 billion!). The total company net revenues were ~$14.5 billion. If you include the CS side, GE runs a D/E of something like 4.2--there's upwards of 4x more GE debt out there than there is GE stock.

The consolidated statement of cash flows is about a hundred pages, but feel free to slog through it if you like.

http://www.ge.com/sites/default/files/GE_AR11_EntireReport.pdf

thanks for the clarification and understanding.

Berto, you are also correct, they are betting against stuff we are not making.

IndyGunFreak
01-02-2013, 10:10
Lesson # 1:

* 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 so far: $38.50

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
Remove the crap?

:rofl:

It's even more laughable when you look at it like that.

johnd
01-02-2013, 10:58
Y'all are missing the point.
Those we voted in dont care.
They dont care about anything other than getting re-elected to keep their positions and everything that comes with those positions.
The managed to find the motherlode of votes and thats the entitlement programs....soon to be amnesty and another 100 million on welfare + another 100 million votes for our kumbayah society.

>>>>>>They dont care because its not their debt, its ours.<<<<<

cowboywannabe
01-02-2013, 11:07
Y'all are missing the point.
Those we voted in dont care.
They dont care about anything other than getting re-elected to keep their positions and everything that comes with those positions.
The managed to find the motherlode of votes and thats the entitlement programs....soon to be amnesty and another 100 million on welfare + another 100 million votes for our kumbayah society.

>>>>>>They dont care because its not their debt, its ours.<<<<<

the bold print sums it fairly well.

Dennis in MA
01-02-2013, 11:26
We're going to increase our population by 1/3 with amnesty??? And put them ALL on Welfare???

Something tells me if we got Amnesty, it would cost us. . . in more expensive houses and gardens and such. All that allegedly "free" labor would turn to properly-waged labor. You all don't seriously think there are 100mil Mexicans waiting to come here and do nothing, do you? There are only 112Mil Mexicans in the first place. LOL

Z71bill
01-02-2013, 11:45
They do. All the time. Lots of business, including some of the biggest most profitable companies in America.

A quick glance at the 2011 General Electric annual report shows that they have something like $11.5 billion corporate debt EXCLUDING the GE Credit Services business (which has more like 450 billion!). The total company net revenues were ~$14.5 billion. If you include the CS side, GE runs a D/E of something like 4.2--there's upwards of 4x more GE debt out there than there is GE stock.

The consolidated statement of cash flows is about a hundred pages, but feel free to slog through it if you like.

http://www.ge.com/sites/default/files/GE_AR11_EntireReport.pdf


:upeyes:

But the REVENUE of GE is GREATER than their EXPENSE

Or if you want to use cash flow instead --

The cash GE takes in is GREATER than the cash GE SPENDS

When GE capital (the financial division) borrows money to lend out it charges a higher rate on the loan than it costs GE to borrow.

This is called positive leverage. A good thing that increases return on equity.

The federal government borrows money to spend of stuff that has (in many cases) no future return.

OctoberRust
01-02-2013, 11:51
We're going to increase our population by 1/3 with amnesty??? And put them ALL on Welfare???

Something tells me if we got Amnesty, it would cost us. . . in more expensive houses and gardens and such. All that allegedly "free" labor would turn to properly-waged labor. You all don't seriously think there are 100mil Mexicans waiting to come here and do nothing, do you? There are only 112Mil Mexicans in the first place. LOL

As long as we only let the hot Mexican Hunnies come over that's fine with me.

devildog2067
01-02-2013, 11:52
:upeyes:

The man asked "what would happen if a company was run the same way" and I pointed out that companies run with large debt loads all the time. It's not intended to be an exact analogy.

Government is not a business. It's not being run for profit.

The federal government borrows money to spend of stuff that has (in many cases) no future return.

In some cases, sure.

The "return" of a government project is incredibly difficult to calculate, and a large percentage certainly is wasted. But the government also has functions which are critical to the US economy, starting from the basics like defense (you're not going to invest in a business if you think someone is going to invade the country and burn it down) through legal services (you don't lend money unless you think that you will have some mechanism to compel repayment) to infrastructure. One could even argue that welfare creates a net positive return, by reducing crime and the associated costs (I think this theory is BS, but the data is suggestive).

series1811
01-02-2013, 12:00
But it's not. Pretending it's a household budget is an utterly false analogy.

Exactly. Households can't just raise their credit limit whenever they max out their credit, and then print money when they don't take in enough to pay the bills and the interest on their debt.

The situation is actually more dire than for a family in a similiar situation.

It can't be fixed and everyone in Washington knows it. The electorate has shown over and over again what they will do to anyone who admits how bad it is or how bad the cure will be.

It will result in a defacto default, by monetizing the debt. There is no other possible outcome, short of economic growth at a rate unseen in history so far.

Bren
01-02-2013, 13:00
They do. All the time. Lots of business, including some of the biggest most profitable companies in America.

A quick glance at the 2011 General Electric annual report shows that they have something like $11.5 billion corporate debt EXCLUDING the GE Credit Services business (which has more like 450 billion!). The total company net revenues were ~$14.5 billion. If you include the CS side, GE runs a D/E of something like 4.2--there's upwards of 4x more GE debt out there than there is GE stock.

The consolidated statement of cash flows is about a hundred pages, but feel free to slog through it if you like.

http://www.ge.com/sites/default/files/GE_AR11_EntireReport.pdf

Comparing the government's finances to a for-profit company is apples and oranges. To compare, GE would have to spend all of it's revenues paying it's employees, then borrow money to donate to charity, without producing any products that increase revenues. Then comparing GE to the government would make sense. You'd do better to find a non-profit charity to compare the government to. The government isn't using it's debt to make money.

devildog2067
01-02-2013, 13:02
Comparing the government's finances to a for-profit company is apples and oranges.
Direct answer to a direct question:

if a business ran this way what do you think would happen to it?

They do. All the time. Lots of business, including some of the biggest most profitable companies in America.

The man asked "what would happen if a company was run the same way" and I pointed out that companies run with large debt loads all the time. It's not intended to be an exact analogy.

Kingarthurhk
01-02-2013, 13:50
Social Security, Medicare, and Medicade eat up 3/4ths of the federal budget. Let's not forget we have a war going that costs over 1 billion dollars a month.

RenoF250
01-02-2013, 14:05
Direct answer to a direct question:

I think the point is your comparison between the government and GE is as improper or than the OPs comparison.

The OPs comparison made its point - we have a ton more debt than income, we spend WAY to much, and we have cut almost nothing.

You can paint it anyway you like but debt is not good. It is much higher than it was 10 years ago and our credit rating has taken a hit as a result. Also, we are not borrowing the money because it is a financial benefit to us, we are borrowing it to piss it away.

devildog2067
01-02-2013, 14:23
You can paint it anyway you like but debt is not good.

Debt is not "bad" either. It simply is. Debt is a tool that can be used to finance things.

series1811
01-02-2013, 14:35
Debt is not "bad" either. It simply is. Debt is a tool that can be used to finance things.

I think there comes a point where debt is definitely bad. And, when you have borrowed more than you can possibly pay back, you are probably at that point.

coastal4974
01-02-2013, 14:41
There were NO budget cuts. hell, we don't even have a budget to cut.

Kingarthurhk
01-02-2013, 14:50
There were NO budget cuts. hell, we don't even have a budget to cut.

Where do you cut? The war that cost over 1 billion a month to prosecute? Or Social Security/Medicare/Medicade that eats up 3/4's of the budge?

The warhawks in the house don't want to slow down any war, ever.

The liberals in the house will never let Social Security/Medicare/Medicade ever be reduced.

So, there you go.

Cali-Glock
01-02-2013, 15:02
Excellent - but let us not forget the 100 Trillion in obligations not accounted for in these figures...

Slug71
01-02-2013, 16:24
Excellent - but let us not forget the 100 Trillion in obligations not accounted for in these figures...

Bingo.

IIRC every man, woman and child is currently about $380,000 in debt.

Flying-Dutchman
01-02-2013, 17:43
I'm not saying that we're not in a deep hole. We certainly are.


But this sort of talk is ridiculous.

The fundamental reason that people buy American debt is that America makes stuff that people want to buy. That's the reason why so much trade is denominated in American dollars.

Our deficit exists precisely because people think that the future productive capacity of the United States is a safe place to park their money. That's why the credit card part of the analogy doesn't make sense. Our federal deficit isn't a credit card--it's money that we lend out cheaper than the rate of inflation.

The one part that does make sense is the part about budget cuts. We HAVE TO cut spending.

The problem there is that the only ones that matter are the three big ones: Social Security, Medicare and defense. Welfare doesn't matter. Foreign aid doesn't matter. NPR doesn't matter. NASA doesn't matter. The budget items that matter are Social Security, Medicare and defense. Using the language of this post, cutting foreign aid is like trying to save $1000 by cutting $0.50 out of your budget.
The US dollar’s status as the world’s reserve currency is the only thing keeping us from an Argentine fate of hyperinflation…for now.

As long as other nations accept our dollars we can keep printing without consequence.

And welfare spending does matter, not as a portion of the budget, but as a negative influence on behavior.

Spending $61,100 per welfare family (including administration costs, fraud and abuse) rewards laziness hence our lowest labor participation rate in 30 years, which lowers tax revenue, which increases the deficit in a vicious cycle.

coastal4974
01-02-2013, 17:51
Where do you cut? The war that cost over 1 billion a month to prosecute? Or Social Security/Medicare/Medicade that eats up 3/4's of the budge?

The warhawks in the house don't want to slow down any war, ever.

The liberals in the house will never let Social Security/Medicare/Medicade ever be reduced.

So, there you go.

They can start by stopping the automatic increases. After that it would be easy to cut the pork if they really wanted to. As far as everything else, cut it till we balance, even military.

Dennis in MA
01-02-2013, 18:00
Social Security, Medicare, and Medicade eat up 3/4ths of the federal budget. Let's not forget we have a war going that costs over 1 billion dollars a month.

In comparison, a billion a month seems cheap.

INJoker
01-02-2013, 18:04
I have never understood how so many "intelligent," ivy-league educated Rhodes Scholar types can fail, at the most fundamental level, to understand the terms "profit" or "surplus."

These people have IQs above 130 a lot of times, yet in their minds, spending more money than you take in is justifiable... Hell, it's usually a "good idea." And continuing to do it indefinitely is seen as "prudent."

It does not work that way. It just doesn't.

Households that go too far into debt file for bankruptcy.
Companies that go too far into debt file for bankruptcy.
Countries that go too far into debt file for bankruptcy.

It is really, really, really simple math:

Revenue - Expenditures = Surplus (+) or Deficit (-)

Surplus = Good
Deficit = Bad

Glock30Eric
01-02-2013, 18:59
I have never understood how so many "intelligent," ivy-league educated Rhodes Scholar types can fail, at the most fundamental level, to understand the terms "profit" or "surplus."

These people have IQs above 130 a lot of times, yet in their minds, spending more money than you take in is justifiable... Hell, it's usually a "good idea." And continuing to do it indefinitely is seen as "prudent."

It does not work that way. It just doesn't.

Households that go too far into debt file for bankruptcy.
Companies that go too far into debt file for bankruptcy.
Countries that go too far into debt file for bankruptcy.

It is really, really, really simple math:

Revenue - Expenditures = Surplus (+) or Deficit (-)

Surplus = Good
Deficit = Bad

I am laughing at your comment. It was good one and I'll vote you if you run any office in the Gov't.

Z71bill
01-03-2013, 07:27
I am laughing at your comment. It was good one and I'll vote you if you run any office in the Gov't.

You can not get elected if you tell the truth.


It is not just the debt - debt is a by product.

We also need to consider how BIG the government is VS the total economy or VS the private sector.

Plus

How fast is the private sector growing - how fast in the government growing.

The BIGGER government is as a % of the total economy the more difficult it is -

If the government is growing faster than the private sector - that is very bad

The worst thing would be you have a pile of debt that has been accumulated over the years - government is growing fast - private sector is growing slow -

This is exactly where we are right now. :shocked:

If we could just hold government spending at current levels (adjusted for inflation even) and grow the private sector 4% a year we can dig our way out -

If we keep growing government so it becomes larger as compared to GDP it will end very bad.

series1811
01-03-2013, 08:20
Where do you cut? The war that cost over 1 billion a month to prosecute? Or Social Security/Medicare/Medicade that eats up 3/4's of the budge?

The warhawks in the house don't want to slow down any war, ever.

The liberals in the house will never let Social Security/Medicare/Medicade ever be reduced.

So, there you go.

Actually, the war in Afghanistan was projected to cost $108 billion in 2012, while the war in Iraq was to cost $50 billion. I don't know what the actual figure came out to be, but that's a little more than one billion a month.

But, it's still a drop in the bucket next to entitlement spending.

http://www.heritage.org/research/reports/2012/10/federal-spending-by-the-numbers-2012