Wednesday, October 16, 2013
Explaining the US Government Shutdown
Tonight at midnight will mark the default by the US on it's debts should Congress not pass legislation that raises the debt ceiling and which has resulted in the two sides being unable to come to terms and has resulted in the current government shutdown.
For most of us the problems are difficult to get our heads around but let's break it down into household terms. We may not be experts at running the government but we are experienced at running our own financial houses.
Let's think of the US Federal Government as a family consisting of two parents, three children, an elderly family member, a dog and a cat.
For many years the family existed on the income of one parent, let's say making $59K. The family often takes a fun extravagant vacation every year and all members are involved in many activities which keep them busy throughout their lives.
They watch their money but they don't budget, and they have been known to throw an expense (like those expensive vacations and dinners out) on their MC or VISA, intending to fully pay them off each month, unfortunately those credit cards have accumulated a balance of $362K with all those charges so the family is only able to make the minimum payment which as we all know means this will never get paid off.
The credit card is at it's max, and one parent suggests they call the credit card company to get the limit raised, while the other one wants to cut it up and stop using it.
Which is the more fiscally responsible?
The problem is if they cut the card then Child #1 will have to cut out their private violin lessons, Child #2 will have to cut his math tutor, and Child #3 will have to skip Soccer camp. It's also going to mean Mom will have to give up her private in home cooking lessons. The Dog will have to stop going to doggie daycare during the day and the Cat will no longer get it's own walker each night. Interestingly, Grandma gets by on a meager amount of money given to her every month. She's the most responsible of all the family members. Meanwhile the two parents, who also have extravagant outside interests, will give up nothing. They will continue to have personal trainers, private yoga sessions, tennis lessons, etc. They will both continue to buy new cars every year even if the old one's are fine.
Does this sound right?
Cutting up the card is absolutely right.
If you're in a similar situation to this you need to freeze your spending, but not across the board and not blindly. You can't cut buying groceries, but you can cut back. You CAN cut Doggie Daycare and hold off on buying a newer car. Even more important is you are not in a position to keep sending a gift of $370 to the neighborhood center, and it's the end of those expensive vacations.
You make fiscally responsible choices. Choices adults make.
If you don't work together, if you don't sacrifice things yourself you run the risk of alienating the family, and worse-- breaking up the family.
You need to stop spending but then re-evaulate that spending. You need to cut your own benefits so that you will work quickly to install the important ones. You cannot cut off Grandma's small allowance, she's already squeaking by. Child #2's Math Tutor is likely more important than Child #1's private violin lessons (and you might see what free lessons are available, or a less expensive teacher). You make choices. Sometimes HARD choices.
All of the above equates to the government problem and the inability of the Democrats and the Republicans not being able to work out any kind of logical resolution.
The US Annual Income projected for 2014 is $5.9 Trillion.
The US Debt is $36 Trillion.
Foreign Aid - $37Billion.
The democrats want to raise the debt ceiling, essentially opening another credit card, the republicans don't want to, but they are also unwilling to consider the fact that without finding a resolution we will also lose the important things like the Math Tutor and Grandma's allowance.
I will say I laugh when I hear we laid off 800,000 NON-essential employees. If I ran a business (and I do) and I was in trouble financially and someone suggested laying off the non-essential employees I would do so not only in an instant but the person who hired employees who are NOT needed. I also don't think 800K is accurate, I believe some of the employees included in the non-essentials are FBI agents and others who are certainly NOT non-essential-- but if we have 200,000 non essentials they should NOT be brought back.
And we need to get together on a plan, or expect a breakdown of the family.
Posted by Andy Fish at 10:43 AM