DKStories Posted August 11, 2011 Report Share Posted August 11, 2011 Over the last few months of debate about debt ceilings, budgets, etc., I've heard one lie over and over again that I can't believe people still believe. This is the old lie about a "Balanced Budget". We hear, mostly from Republicans, that "the average family balances its budget so why can't government?". This is the lie, and why do people actually believe it is true? Almost every American family does not balance its budget annually. The biggest exception to this would be our retired population, but the average working-age family finances its debt over the long term. Let's take the two basic big-ticket item most American families have: our houses and our cars. Do you have a loan out for either of those? Most Americans do have a car loan and/or a home loan. Even when I rented an apartment (as a single man), I still ended up carrying a car loan. Sure, I couldn't afford a brand new car, so I got a used car from a lot, but I still had a loan for that car. Unless you're either very rich and can pay cash for everything, or very poor and unable to get a loan so you have to scrounge up cash for everything, you use your credit to obtain loans or credit cars. Almost all of us will end up carrying over that debt from one year to the next - the same as our government. So, let's look at this a little. Our family goes on vacation, but we don't have $5,500 cash on hand to finance the vacation. Instead we put $2,500 of it on credit cards and use $3,000 in cash for the rest. Over the next 6 months we pay off that $2,500 on the credit cards. Before it gets paid off, our refrigerator goes on the fritz and we have to pay $600 in repairs. We also put this on the credit card and pay it off over the next few months. At the same time, the kids have back-to-school expenses. Like our vacation we split this between cash-on-hand and credit cards, putting another $500 on the credit cards as a result. Take this cycle, rinse and repeat. Meanwhile we have two cars that we bought new, right off the lot by obtaining loans. We pay loan payments on those vehicles for a combined total of $1,200 per month. The good news is that car #1 is paid off in six months and our payments will go down by $700. The car is in good condition so we'll keep it for use and use that extra $700 towards paying off more of the credit card debt. (at least for a year when the oldest kid turns sixteen and we buy another car so he can use the old one as his first vehicle). That leaves us the big investment, our home. Houses are expensive. A good 2,400 square foot home cost us $250,000 (hey, we bought after the bubble). Thanks to really good interest rates, we financed that $250,000 over 30 years at an interest rate of 4.25%. That's a good interest rate, and after taxes, insurances, escrow account payments, etc. we end up making payments of $1,800 a month. Fortunately our income is enough to cover most of our credit payments so we stay current on paying our debt. Most people like to call this a 'balanced budget'. We have our debts, we pay them off and we stay current. Still, at the end of the year we might be carrying as much as $350,000 in household debt between our cars, houses and credit card debts. Our government does the same RIGHT NOW. We finance purchases over the long term (what else do you call our bombers, ships, tanks, bridges, highways, national parks, etc and etc?). We have very expensive big-ticket items and we have expensive day-to-day items that we finance on a regular basis. In the end though, we finance our governmen the same way American families budget their households. Where this break downs, of course, is that the government can decide what its credit limit will be. As a result our debt burden gets too high compared to our annual revenue. As a result, we DO need to hold serious conversations about what to cut in our budget, and whether we should increase our revenues. What we don't need, and would in fact be bad for us, is to force our government to match every expenditure to every revenue dollar. There are things that can, and should be financed over time. Still, we need to put to rest that old adage about "balancing our budgets like the average family". The average family doesn't balance its budget its year, but rather carries over debt from year to year, sometimes paying that debt down, sometimes seeing it increase at the end of a bad year, but always that debt is there. Quote Link to comment
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