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Given its simple elegance in addressing a question frequently asked on this site, this post has been elevated from the forums section. It has been updated by site members rhare and travlin since its first appearance (the original post can be read here).
I've been working on a way to get across to friends and family how bad the economic situation has become. I find one of the biggest problems is that when numbers are in the billions and trillions they are very hard to imagine, and people get this glazed/deer in the headlights look. So I decided to try to scale the numbers in a way that can be more easily visualized.
Below is an updated version, with many thanks to members of ChrisMartenson.com community who suggested changes/corrections, and particularly to Travlin for rewording much of the message to make it a better story. Hopefully this version will help convince others of the serious nature of the US fiscal outlook.
My Troubled Relative
I need your advice. I have a relativewho is in financial trouble. He makes $50,000 a year, but he spent $74,591 last year, and his prospects of making $50,000 this year look kind of bad. There's a good chance he will get a pay cut.
Unfortunately, he’s been overspending for quite a while and has charged $295,632 on credit cards. He’s been lucky enough to get low teaser rates, and when those have expired, he’s been able to transfer the balances to other low-rate cards. So he keeps charging $24,591 per year beyond his income. If he can’t keep rolling over his debt at super low rates, the interest will quickly eat him up.
But, that's not his worst problem. He convinced his family he was a great investor. His parents gave him a portion of their income for many years, and he promised he would make regular payments to them and cover their medical care when they got too old to work. The problem is, he spent all the money. He also has dependents who are poor, and he promised to help them out, too. To cover those promises, he should have $2,372,953 sitting in a bank account earning an interest rate that keeps up with inflation. But the money is all gone.
So what should he do? Well, his Republican friends, who say they are responsible with money, have decided he must really cut spending to get things under control. There are lots of things he can live without, so they say he should reduce spending by $1,292 per year. His Democrat friends say that’s too much. They feel it would be a great hardship for him to cut spending that drastically, so reducing it by $137 should be about right.
So here’s the picture:
- $50,000: Income
- $74,591: Expenses
- $24,591: Deficit
- $295,632: Short-term revovling debt at artificially low rates
- $2,372,632: Unfunded promises
- $1,292: Republican friends budget cuts
- $137: Democrat friends budget cuts
So, what does the future look like for my Uncle Sam? Do you think he can keep going like this much longer? What about his family who are counting on the promises he made to them? Do you see any possible solution other than bankruptcy?
Multiply the above numbers by 47,620,000, and you get the fiscal picture for the United States Government in 2010:
- $2.381 Trillion: Revenue
- $3.552 Trillion: Budget
- $1.171 Trillion: Deficit
- $14.078 Trillion: Debt
- $113 Trillion: Unfunded Liabilities (Social Security, Medicare, Medicaid)
- $0.0615 Trillion ($61.5 Billion): Republican proposed budget cuts
- $0.0065 Trillion ($6.5 Billion): Democrat proposed budget cuts
Sources
Wikipedia: http://en.wikipedia.org/wiki/2010_United_States_federal_budget
US National Debt Clock: http://www.usdebtclock.org/
CNN: http://www.cnn.com/2011/POLITICS/03/09/photos.proposed.cuts/index.html?hpt=Sbin
Calculations
3.552T Budget / 2.381T Revenue * 50,000 Income = 74,591 Expenses
74,591 Expenses - 50,000 Income = 24,591 Deficit
1.171T Deficit / 2.381T Revenue * 50,000 Income = 24,591 Deficit
14.078T Debt / 2.381T Revenue * 50,000 Income = 295,632 Short Term Debt
113T UFL / 2.381T Revenue * 50,000 Income = 2,372,953 Unfunded Liabilities
61.5B Republican cuts / 2.381T Revenue * 50,000 Income = 1,292 Republican cuts
6.5B Democrat cuts / 2.381T Revenue * 50,000 Income = 137 Democrat cuts
This What Should I Do? blog series is intended to surface knowledge and perspective useful to preparing for a future defined by Peak Oil. The content is written by ChrisMartenson.com readers and is based in their own experiences in putting into practice many of the ideas exchanged on this site. If there are topics you'd like to see featured here, or if you have interest in contributing a post in a relevant area of your expertise, please indicate so in our What Should I Do? series feedback forum.
If you have not yet seen the other articles in this series, you can find them here:
- A Case Study in Creating Community (SagerXX)
- Peak Certainty, Food Resilience, and Aquaponics (Farmer Brown)
- Creating Healthy Snacks from Your Garden (EndGamePlayer)
- The Essential Gardening and Food Resilience Library (Old Hippie)
- Installing A Solar Energy System (rhare)
- The Keys to Transitioning Healthcare: Empowerment, Education, & Prevention (suziegruber)
- A Quiet Revolution in Bicycles: Recapturing a Role as Utilitarian People-Movers - Part 1 (Cycle9)
- A Quiet Revolution in Bicycles: Recapturing a Role as Utilitarian People-Movers - Part 2 (Cycle9)
- Practical Survival Skills 101 - Fire Starting (Aaron Moyer)
- Raising Your Own Chickens (Woodman)
- Dealing With a Reluctant Partner (Becca Martenson)
- Making the Urban-to-Rural Transition (joemanc)
- Prepping on a Shoestring (Amanda)
- Practical Survival Skills 101 - Water (Aaron Moyer)
- Small-Scale Beekeeping (apismellifera)
- Making Soap (maceves)
- Woodworking (bklement)
- Practical Survival Skills 101 - Obtaining Shelter (Aaron Moyer)
- Extending the Harvest in Your Home Garden (Woodman)
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- Cultivating Inner Resilience in the Face of Crisis (suziegruber)
- Protecting Yourself Against Crime and Violence (thc0655)
- Managing Pain Without Meds (JAG)
- How to Explain the Current Economic Situation to Friends & Family (rhare)
This series is a companion to this site's free What Should I Do? Guide, which provides guidance from Chris and the ChrisMartenson.com staff on specific strategies, products, and services that individuals should consider in their preparations.
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Rhare
This is a simply brilliant way to illustrate our problem. I have one suggestion to add to Poet’s idea of presenting this as a description of my friend Sam. (Post 1 in the thread.) http://www.chrismartenson.com/forum/how-explain-friends-current-economic-situation/54377#new I believe you calculated one ratio to apply to all the numbers to bring them down to a comprehensible scale. To end the story of Sam dramatically we can say, “Now multiply these numbers by X, and this accurately describes the financial condition of the United States Government.” So what number is X?
Very nice work Rhare.
Travlin
You can always trust your government -- to do anything necessary to preserve itself. Travlin
I used the revenue as the base number so:
X = 23,810,000 (2,381,000,000,000 ÷ 100,000)
I also added the following in the letter I sent to the editor of our local paper:
If the US completely dropped all Social Security, Medicare, and Medicaid promises and decided to balance the budget and pay off the debt already incurred in 30 years at 3% interest the current budget would still need to be cut by more than 1/2 (55%).
I'll recap what I said before...
Really great analogy! This is really a great way to talk about the situation with people!
Obviously customizing the approach to suit the audience and to make it really hit home, that's what your post is about.
As you know, I would ask people I know if they could help with advice for a friend I have, whom I'll call "Sam". Maybe at the end, after receiving financial advice from them, I would reveal that it's actually a relative. It's "Uncle Sam". Their jaw should drop about then...
For those who may want to emphasize a different aspect of the "mob", rather than say "mob" they could try changing that to "parents". Many years ago, "Sam" started collecting money from his parents and promised invest it for them for their retirement. He sent them statements every year showing how much they had contributed and what they could expect to get. But now they're REALLY heading into retirement and have medical issues and bills looming.
But "Sam" actually squandered all the money as soon s he got it. Now what is he going to have to do? Do you think he will either have to borrow more, or reduce what he promised he would give them? Sam has "kids" (food stamps, welfare, defense, etc.), too.
Poet
Not sure if y'all have read Mr. Krugmans NY Times op-ed from Mar 10, 2011 where he says there's no reason to get so worked up about the budget:
Of course he doesn't mention that we're borrowing the money from ourselves and debasing our currency and exporting inflation as a result.
http://www.nytimes.com/2011/03/11/opinio...
Is the US really paying 30% interest on its debt? That's astounding.
The comment about 30% was comparing to a consumer with a low interest card that suddenly finds the interest rate at something like 29.99% (as has been discussed on other forums). Currently the US is paying around 3% on debt (more info here as well). How much longer that can continue is anyones guess....
This is an excellent article. Thanks!
The next piece of info that I would throw at people is a basic overview of exponential equations. Like Albert Bartlett said "The greatest shortcoming of the human race is our inability to understand the exponential function." When people start seeing the huge difference between an interest rate of 4% to 8% to 12%, etc. on the national debt they start to grasp the very precarious situation we are in.
You beat me to it. I have been using a similar (but not nearly as good) analogy for the past few months when trying to get people to realize the ridiculous predicament we are in. Well done!
I have found in my discussions that people are just clueless as to the difference between a billion and a trillion! One guy asked me "but don't other people owe us a bunch of money too?" Good Grief. . .
Rector
When you finally get outraged enough, grab your rifle and run outside. If you're the only one there, its not time yet.
This is fascinating and very interesting! This seems like an excellent way to explain IT to someone. However, I'm very pessimistic anyone will actually listen and be transformed by this. Have any of you gotten through to somebody who was previously clueless, disinterested, distracted? What's been your percentage of success/failure. I've gotten through to one person completely, and that happened the same way it happened to me: The Crash Course. But he's one of only 3 people I've spoken to who've watched the whole course, everyone else is "too busy." However, there have been a few who took me at my word (without understanding what's going on for themselves) and asked me what they should do (good grief!). I don't want to tell someone what to do if they don't know why and could make the decisions themselves.
We deserve the business and political leaders we have because they are just like us, just more so. We live beyond our personal means. They live beyond their corporate means and national resources/tax base. We put off important and painful choices, which just makes things worse. So do they, on a much larger scale. We lie and deceive to cover up our mistakes and moral failings. So do they, on a much bigger stage. If WE would pay attention and wield the power WE have, this could have been prevented and even at this late stage we could still choose the least of the bad paths available to us. However, WE are no wiser or better than the fools running the ship. Sorry, I'm very pessimistic, but still trying, like you. This approach might reach a few, and that would be worth it.
Sound collision. Brace for impact.
The huge storm cloud, all black and furious, approaches relentlessly, too hideous to be faced by more than 1 in 10,000. Philadelphia, PA
great comparison.
only you have a small mistake - the link to the 144T unfunded liabilities isn't for today's situation, only a projection to 2015.
Today it stands at approximately 113T.
http://usdebtclock.org