Sunday, August 7, 2011

Dave Ramsey's Simple Analogy Makes It All Clear

Financial advisor Dave Ramsey, who understands the ball-and-chain of debt like no one else, puts the national debt into simple terms that anyone can understand:

“If the US Government ​was a family, they would be making $58,000 a year, they spend $75,000 a year and are $327,000 in credit card debt. They are currently proposing big spending cuts to reduce their spending to $72,000 a year.”

Got the picture now? Washington sure as hell doesn't. The Democrats are calling for higher taxes, which (to use Dave Ramsey's numbers) would raise the family's income (perhaps -- remember the Laffer Curve) by only about $5,300 per year. And under the Democrats' spending rules, any such increase in revenues would promptly allow them to increase spending by the same amount. So instead of taking in $58,000 and spending $75,000 per year, they would be taking in $63,300 and spending $80,300 per year. What a great way to reduce debt!

But even under the Republicans' Ryan plan, spending would still be reduced just to about $62,400 per year in Ramsey's numbers. So without an economic recovery, which would bring in more income for everyone, resulting in more taxes (without raising them), the Government (family) will still be increasing its credit card debt for the foreseeable future. And that is a recipe for bankruptcy, no matter how you slice it.

(H/T: Pat Dague's Transfigurations)

[UPDATE 08/09/2011: I know that it will not be popular among some of my friends to point this out, but facts are facts, and a Curmudgeon's duty is to call everyone's attention to unpleasant facts: the truth is that President Barack Obama has no clue about our current situation -- how we landed in a debt crisis, or what to do to get out of it. Sarah Palin, in stark contrast, gets it -- she really does. She understands basic economics, knows what has to be done, and lays it all out in simple terms, for everyone to see. (Moreover, as she explains, this is not some new enlightenment that has recently dawned on her -- she has been saying the same things for quite some time now.)

Remember how certain all those on the left were that Barack Obama would make a brilliant President, and Sarah Palin an incompetent one? The sad thing is that, even now, those who drew the comparison still cannot see the difference, or how wrong they were.]


  1. Excellent analogy. The only reason the Federal Govt can keep its head above water is that the debt is subject to extremely low interest rates. If the rates rise precipitously, they are instantly in bankruptcy.

  2. “If the US Government ​was a family, they would be making $58,000 a year, they spend $75,000 a year and are $327,000 in credit card debt. They are currently proposing big spending cuts to reduce their spending to $72,000 a year.”

    It's a good analogy, but it needs a few more facts:

    1) In fact, the family finally got its budget balanced a few years ago, but then Junior took over, and after giving away a lot to his rich friends, and getting into two fights he couldn't pay for, he so busted the budget that the house went into foreclosure.

    2) Of course the family could balance their budget, by taking the kids out of school and putting them to work, and by letting Granny die by discontinuing her medical treatment. But, bad as going further into debt is, the family isn't willing to kill their kids' future or let Granny die.

    3) Unfortunately, some people are so upset about the financial picture, they want to put Junior in charge again. They change the subject when you mention Granny.

  3. @Rick Allen:

    You are assuming that Bush is different than Obama. In fact they work for the same interests. Bush I, the Walker, had to walk because as soon as he got elected he got to work immediately into dismantling Ronald Reagan's efforts. He grew more government and so did his son Bushito. Bushito decided that the best way to defeat terrorism was to curtail individual freedom and create several HUGE administrations, chiefly among them a new American KGB. Hence the trillions. They are playing good-cop-bad-cop with us. That is why I hope for another Bull Moose Party AND the demise of at least ONE of the "traditional" parties. The punishment must fit the crime. The American People must punish the political establishment with the unbridled brutality. Otherwise it's curtains for freedom around here.