In our last post, we discussed what the raising of the debt ceiling would mean to interest rates and the real estate market. This post originated from a conversation (http://www.facebook.com/realestatematters) we had with UVa Professor Ed Burton on what it all really meant. I found it interesting that Professor Burton shared that the real problem with the debt ceiling and the downgrading of our country's credit is that the government isn't really doing anything to reduce the deficit. Last week I saw an interesting analysis that brought this point home in the simplest of ways. Check it out *numbers come from Hailey, McNamara, Hall, Larmann and Papale, llp and if accurate make an interesting point.
US income $2,170,000,000,000
Federal Budget $3,820,000,000,000
New Debt $1,650,000,000,000
National Debt $14,271,000,000,000
Recent Budget Cut $38,500,000,000 or about 1% of the budget
Sounds like a great deal until you remove 8 zeros and pretend this represents a household budget
Total Income for ficticious family $21,700
Amount of money family spent $38,200
Amount of new debt added to credit card $16,500
Outstanding debt on credit card $142,710
Amount the family cut to help make ends meet $385
Needless to say, this cut will not make a dent in the family debt.
When we talk in trillions it is so easy for our eyes to glaze over and not understand what is really heppening. When we reduce the amount of zeros we see that very little is being done to reduce our debt and until that happens, economic recovery will be a long time coming.
