We currently have a very serious problem in our country that needs to be addressed if we are to avoid a national calamity. Many are aware of particular facets of this problem such as poor employment opportunities and the current high unemployment rate but many don’t understand the meaning or significance of high deficits and “out of control” national debt. I offer the following analogy that should make this problem easy to understand for everyone.
Imagine that your family is aboard a boat that has developed a leak in the hull. You realize that if you are to prevent the boat from sinking, you need to stop the leak or at least bail out the water as fast as it is leaking in. Now let’s equate that to your family’s financial situation. The water leaking in represents the amount of money you spend and the amount of water you bail out represents the amount of money you earn. As long as you bail out as much water as leaks in, or earn as much money as you spend, the boat is safe and will not sink. In essence, your budget is balanced. However, if you spend more than you earn or fail to bail out as much water as leaks in, your budget is running a deficit. As a consequence, the total money you owe, i.e., your debt, grows in the same fashion as the total volume of water that a leaking boat would accumulate. If these conditions continue, the boat would eventually sink. So, in the case of the leaking boat, what would you do? Obviously, you have several choices but if you want to prevent the boat from sinking, you at least need to bail out water at the same rate as it is leaking in. Better yet, you might patch the boat to stop the leak. But the best solution would be to both stop the leak and then bail out all of the accumulated water.
In financial terms, financial advisors would advise a family with such problems to immediately stop spending more than they earn, i.e. adopt a balanced budget in place of a budegt running at a deficit and to develop a plan to eventually pay off the previously accumulated debt. The ultimate goal would be to become debt free. Remember when you are in debt, a portion of the money you earn each month goes to pay interest on that debt and, thus, you have less money available for other things.
The United States, as a country, is in such a situation and, collectively, we individuals are the United States. Our government represents our employees that we have hired to manage our affairs and they have done an absolutely terrible job. Remember, government does not create a penny’s worth of wealth. It is created by all of us, the private sector. The government simply takes a portion of what we create in the form of taxes and spends it as it so desires. The great problem is that for many years the government has been spending more than it has taken in and as a result, we now have a massive national debt. In fact it is so large that each one of us, each man, woman and child in this country, is in debt to the tune of more than $45,000 and that figure is rapidly growing. The problem is that the vast majority of us will never have the capacity to pay off our share of that debt.
Putting this again in the context of a ship taking on water, the good ship USA is taking on water faster that it is being bailed out and the amount of water already accumulated in the ship’s hull is rapidly approaching the critical amount where it will sink the ship.
What can be done to prevent disaster? Our problem is our government. They are the one’s who we have entrusted with the responsibility for keeping us safe. Yet many of them are still resisting the need to stop the leak and today we see the first alarm bell being sounded, Standard and Poors has downgraded our credit rating. This is first time in the history of this country that we have heard this alarm. Some in government are warning that we need to stop the leak. In order to do that in the financial sense, we need to ensure that we spend no more than we take in, i.e., we need a balanced budget. The only sure way of ensuring this is via a balanced budget amendment, a move vigorously opposed by many liberals in our government. They would rather retain the ability to continue the spending binge. Why? Because, they are able to buy votes by giving their constituents money. Furthermore, we need a plan to pay down this enormous debt, currently approaching $15 trillion. Selfish, self-centered motives trump keeping the ship afloat. As ridiculous as this sounds, this is the crux of our current problem. With luck, the ship may be able to stay afloat for the duration of this generation but future generations face a nearly impossible task of surviving.
Post Note! It's come to my attention that the Liberals are attempting to blame the so called "tea party" Republicans for the credit downgrade. That's a bit like the king killing the messenger who brings him bad news. This group of newly elected members of congress is simply attempting to carry out the mandate expressed by the majority of Americans. These people get it. They don't want the boat to sink. They are simply insisting that our government take immediate action to deal with budget deficits, i.e., government spending that exceeds revenues, as well as the total amount of money owed by all of us, i.e. our national debt (now approaching $15 trillion).
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