Knocking off zeros to see the math

We live in a surreal world today.  Leverage has mounted in our financial system so much over the past 30 years, that today we toss around talk of billion, trillion and even quadrillion in order to express the state of the world economy and our staggering indebtedness.  In every day terms this many zeros can seem incomprehensible.  This morning a client sent me the following summary of US debt and spending stats both in actual digits and then again with zeros knocked off so that we can see the math on an everyday household level (thanks Jerry):

* 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

In this way I think we can easily appreciate how unsustainable this financial behaviour would be for a family, and ergo for a country.

It is also important to note two other key points in this. First these unsustainable ratios are not unique to only America, but are common through most of the western world today. And second, the above planned budget expenditures do not include the trillions in unfunded health and social security benefits which most western countries have promised to their now rapidly aging populations.

The math says cuts across the board for all government programs and entitlements. It also says zeros will have to be cut off current debt obligations. This means those presently holding many sovereign bonds and banks will have to lose money.

Back to the email forwarded from my client:

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 poop?

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One Response to Knocking off zeros to see the math

  1. perry says:

    Excellent read! especially loved the last solution.

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