Punchinello’s Chronicles

February 11, 2011

How Much is a $500-Billion Cut?

Filed under: Surely a Jest? — Punchinello @ 4:10 am
Tags: , , , ,

First-term Senator Rand Paul, Republican from Kentucky, has proposed cutting $500-Billion from the federal budget. The likelihood of that happening is pretty much zero. Oh my Gosh!, you might say. That’s an awful lot of money! Is it? Well, let’s consider the 1-year (i.e., annual) budget deficit of $1.5-Trillion ($1,500-billion). To cut that much money from the budget would still only be a third (30%) of the single year’s deficit.

Consider the current, on-the-books-only US national debt of $14.3-Trillion. We say “on the books” because that doesn’t at all include what will be coming due for expenses to Social Security, Medicare, pensions, bonds, interest and so forth. In fact, ALL our money is a debt since we borrow every single dollar from the Federal Reserve. Every time the US Treasury is “authorized” (by the Fed) to print up some money, we’re borrowing that money.

How much is $500-Billion when associated with $14,300-billion? Well, it turns out to be 3%. Wowie Zowie!

The problem with these astronomical numbers is that they don’t mean anything to us. So let’s “convert” all these numbers and divide them by 100,000,000. We’re going to take 1 One-Hundred-Millionth (1/100,000,000) of these numbers, just so we can come up with something useful.

To begin with, the US takes in about $2.6-Trillion in tax revenues each year. Incomprehensible until we reduce it to 1/100-millionth. That’s $26,000. Let’s just say, for the sake of argument (’cause I’m old) that’s about a decent starting salary for a typical office administrator, okay? Good!

We’re earning twenty-six grand each year, and we’ll even say that’s after taxes (just to be ironic).

Now how much is that $14.3-Trillion in total overall (on the books) debt? Run the numbers, and it’s $143,000. Hmm, well, okay that’s a mortgage for an inexpensive house in many typical US cities or towns. Even if it’s not, let’s say it is because we can at least relate to the number.

What about that annual, 1-year deficit of $1.5-Trillion? That turns out to be $15,000. Yikes!

Our office administrator is bringing in about twenty-six grand, and spending $41,000 a year! Holy Smokes! (They spend their entire annual salary, PLUS borrow an additional fifteen grand and spend that too!)

For you and me, and our pretend office worker, there’s a sort of typical (in the old days) formula for debt. You’re supposed to be spending around 1/3 of your income on housing, and 1/3 on debt. That debt usually includes things like car loans, credit cards, and whatever other debt. The remaining third is how you live (like, with food, electricity, heat and other useful items).

Alright, if we follow the old-fashioned formula, then our $26,000/year office administrator can “afford” about $8,580 in debt. That would be annual debt.

There’s a gap here of $6,420 that’s not being paid by traditional methods. ($15,000 – $8,580)

That means that for you and me, if we were earning about twenty-six grand a year, AND we were paying fifteen grand in debt each year, we’d be over the typical limit (if we applied for a loan) by a huge amount!

Don’t forget, we also owe $143,000 total, so far. And to be fair, that would be credit cards, student loans, car loan, and maybe a condo.

It’s doable, if you sort of wiggle your eyes and blur your vision. And if you have a couple of shots of tequila, and smack your head with a hammer (lightly). ‘Course, we won’t worry about losing the job and becoming UnEmployed, right?

How come everyone’s upset? Why are conservatives and Tea Party folks getting really nervous? I mean, all things considered, our office administrator “could” maybe pay off that total debt, and definitely could work on that annual over-spending right?

Rand Paul wants to cut $5,000 in spending each year. Keep in mind that according to tradition, our administrator is overspending by $6,420, so the five grand doesn’t even bring things back into reasonable alignment! Per year!

Now let’s take a look at those OFF the books expenses (and divided by 100,000,000):

  • Social Security liabilities (what’s going to come due) = $14.8-Trillion ($148,000)
  • Prescription Drugs program payments = $19.6-Trillion ($196,000)
  • Medicare costs = $78-Trillion ($780,000)

Total off-the-books liabilities: $112.4-Trillion (which means $1,124,000)

Holy Crap!

Here’s our office administrator who makes $26,000 per year, right? And right off the bat, has a legitimate, on the books total debt of $143,000. But when we factor in all the OTHER debt that’s not showing, that’s an additional $1.12-MILLION Frickin’ Dollars!

How much does this poor sap own in all the world? What’s the total net worth of our Office Administrator kinda person? Well, the USA has total assets of $72.7-Trillion, which (taking 1/100-millionth) means $727,000. Who knows, maybe they come from a wealthy family? It’s a trust fund? They won the lottery at some point?

If we were to take EVERYthing this person owns and is likely to earn, sell it for full market value, the office administrator would be flat broke, homeless, and have maybe the clothes they’re wearing. And they STILL would owe $397,000!

Jeez….that can’t be good!

Just for shits and giggles, let’s play with the total amount of money owed, around the whole world, by ALL the frickin’ banks when it comes to the “derivatives” market. These are the phony pieces of paper that say the bank (or someone) owes someone else for an investment.

The wild-ass guess (since derivatives aren’t regulated and nobody really knows) is somewhere in the neighborhood of: 600-TRILLION FRICKIN’ DOLLARS! That’s more than half a QUADRILLION, just so you know.

If our office administrator was a crook, selling shares in the Brooklyn Bridge and some gold mines in New Mexico, then taken all together that would be $6-million owed! Owed to Who Knows Who; people who invested money for some hair-brained scheme. We could call our office administrator Mr. Ponzi, actually.

How do you figure someone who earns $26,000 per year is going to pay off $1.3 million dollars? And what about that other six million ($7.3-million, total)? Nobody knows. It’s a mystery! Maybe they’ll just declare bankruptcy!

Oh, wait…I forgot…a country can’t declare bankruptcy! Well…default? Just not pay it and screw the debt?


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