Consumer Debt vs. Government Debt. How Can We Judge Congress When Our Plastic is Maxed Out?

Ben from Money Smart Life contributed this guest article. The title of his blog is fitting, because he give tidbits about personal finance and also things like how to reduce money stress. This article definitely deviates from my normal writing, since there is a political edge to it. I tend to stay away from politics because it’s not something I feel qualified to discuss and I don’t feel it affects my debt reduction. But, I’m a very laid back person and open to hearing viewpoints. That’s why I’m glad Ben sent this article. Please share your viewpoints in the comments below. If you like what you read here, make sure you visit his blog.

Every child that is born in the United States is automatically saddled with thousands of dollars of debt. I heard this unfortunate fact referred to as the â€œBirth Taxâ€ during a radio interview with a presidential candidate this week. He was referring to the federal deficit and how the total national debt divided by the number of US citizens would come to thousands of dollars a person.

What Moral Authority?
Every time I think of the enormous national debt our government has accumulated it makes my blood boil. But as I thought about the problems of consumer debt and government debt I realized we donâ€™t have much moral authority to complain about deficit spending. How can â€œwe the peopleâ€ expect our Congress to pay down debt if we can’t even do it ourselves?

A Family of Millions
We’re in charge of our own family. They’re in charge of a whole country. If we can’t spend less than we bring in while trying to support just a few people, how can we expect them to do it for millions of people?

Disaster Excuses
So your car died and you had to use â€œemergencyâ€ credit. You want an emergency, what about September 11th or Hurricane Katrina? We think we have it bad, think about trying to pay for those disasters. If we canâ€™t build an emergency fund to pay for unexpected car repairs how can we cry foul when the government isnâ€™t running an â€œemergencyâ€ economic surplus?

Time for Change
Our government has had some major unplanned expenses over the last two presidential terms and racked up quite a bill. The time has come for them to exercise fiscal restraint, cut spending, and reduce the national debt. It is also time for us consumers to change our unhealthy financial habits and start chipping away at our debt. Once weâ€™re debt free we can call out for fiscal restraint, until then why should they listen to us? I know, we pay the taxes, but you get the point.

Thanks Ben for the article

Posted by Tricia on February 13, 2007 at 9:49 AM in General Debt | 4 Comments »
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Kevin M responded:
Posted: February 13th, 2007 at 11:41 am
Gov’t debt is a vastly misunderstood subject, and Ben seems to be just one of the misled.

Simply put, there is no reason this debt EVER has to be paid back. For virtually all of our country’s entire existence, the debt has never been paid back. It’s been rolled over.

Think of it this way. A person starts out their adult life earning generally low wages, and then throughout life as they gain skills and expertise, they continually earn more and more. This represents our country’s GDP.

That same person probably also buys a starter home with a mortgage, and then throughout their life continually buys nicer homes with even bigger mortgages, since they have the income afford it. This is the national debt.

Since the nation will never retire, the GDP, and thus the tax revenues, will only continue to grow, and thus the gov’t can continue to afford the interest payments on more and more debt.

Here’s some interesting facts about the national debt:

Interest on the debt now consumes less percentage of government tax receipts than it did during Clinton’s time, despite Bush’s heavy borrowing. How can this be? Because tax receipts have also been growing heavily. In 1998, debt service consumed 14% of tax receipts. In 2006, it consumed under 10%. America’s ability to pay interest on the debt is becoming less of a burden, not more so.

Approximately 40% of the national debt is owed to the government itself. US Citizens own approximately 35% of the debt. The other 25% is owned by Foreigners.

I highly recommend you point readers to a blogger called The Skeptical Optimist http://www.optimist123.com/optimist/ for facts and views on the national debt that you just won’t hear anywhere else.
Money Smart Life » National Debt - One Issue, Two Perspectives responded:
Posted: February 14th, 2007 at 2:24 pm
[...] How can we expect the government to be financially responsible if we canâ€™t even stay out of debt ourselves? Thatâ€™s the question I asked yesterday in a guest post over at Blogging Away Debt. [...]
Looking for Guest Bloggers » Blogging Away Debt responded:
Posted: March 15th, 2008 at 10:30 am
[...] Debt Reduction Plan Zen and the Art of Financial Prudence Super Simple Method for Debt Reduction Consumer Debt vs. Government Debt – How Can We Judge Congress When Our Plastic is Maxed Out Debt From Another Angle Lending on [...]
JJ responded:
Posted: March 30th, 2009 at 10:12 am
Paying the debt back is irrelevant. It’s the service on the debt that’s the problem. Sorry, but interest rates can do us in-right now the service on the debt is already double what it was a few years ago and will accelerate once Bernanke loses control of the spreads. Try digging into the subject.