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Does Your Budget Resemble the U.S. Government Budget?

A Balanced Budget by definition: Income = Spending

If your Budget has a running deficit there are only three possible solutions to turn that into a Balanced Budget:

  1. 1. Reduce your spending
  2. 2. Raise your income
  3. 3. A combination of 1 and 2

Logically we know that you cannot decrease a deficit by borrowing more. But, that is exactly what our Government is doing.

The United States budget process anticipates outspending revenues creating a deficit and an increase level of federal debt. The numbers are so large, it’s difficult to comprehend their size. The chart below is great illustrations.

The chart scales the federal numbers to a more manageable size it shows what would happen if U.S. households ran their personal finances the same way. Here’s what their balance sheet would like.

(Methodology: Due to the sheer size of the numbers, the U.S. federal budget was scaled down by dividing the U.S. median household income level for 2009 (the most recent figure available) by the actual 2010 Federal Tax Revenue computing rate of 0.000002323%. This factor was then applied to the actual Current Federal spending, deficit, and accumulated debt for 2010. The same concept was applied to the hypothetical household income.)

We need to balance our budget and quickly or we will be experiencing the same problems that Europe is now and who will bail us out?

What is going in Greece today is also going on throughout the Western world. Lined up like dominoes are other governments whose accumulated IOUs vastly exceed their ability to bully taxpayers into making good on them. Governments that squeeze producers and consumers too hard soon learn that growth suffers, making anticipated tax revenue evaporate before it is even collected.

It doesn’t have to be this way. But if we don’t learn from Greece’s mistakes we will surely repeat them. Let’s hope the rest of us rediscover the moral foundations of money before we are forced to experience barter clubs firsthand.

 

Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with unbiased investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Sources:
United States Govt. Numbers taken from Congressional Budget Office summary ‘Budget and Economic Outlook: An Update’ Actual numbers are calculated as a percentage of the GDP for 2010. Accumulated debt taken from TreasuryDirect.gov for December 31st, 2010.

U.S. Median Household Income level taken from U.S. Census Bureau, American Community Survey, 2009.