August 10, 2011

US debt to income ratio is 667%

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I've seen this quote, supposedly from Dave Ramsey, making the rounds on Facebook:
If the US Government was a family, they would be making $58,000 a year. They spend $75,000 a year, and are $327,000 in credit card debt. They are currently proposing "big" spending cuts to reduce their spending to "only" $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand. What I want to know is how they are somehow still AA+.
I've been unable to verify whether Ramsey actually said this: I looked on his website and could not find it. All the references I find online are out-of-context quotes. So the claxon on the the File 13-O-Meter sounded, and I started checking the numbers. Here's what I found:

The 2012 budget forecasts federal receipts of $2.174 trillion and outlays of $3.729 trillion. This is the proposed budget: The bipartisan commission formed as a result of last week's debt ceiling deal will presumably figure out how to close the $1.101 trillion deficit.

The national debt, meanwhile, is $14.5 trillion. But there's a number left out of the "Ramsey" equation: the gross domestic product, which is $15.81.

By comparison, in 2009, the most recent year for which I could find complete statistics, the U.S. median household income before taxes was $62,857, and average annual expenditures were $49,067.

An Associated Press analysis of a Federal Reserve report from about the same period shows average household debt of $114,434 and average household net worth of $455,173.

So let's see how this stacks up:

Federal Government "Ramsey" example Average US Household
Income $2.17 trillion $58,000 $62,857
Expenses $3.73 trillion $75,000 $49,067
Expense/ Income ratio 171.5% 129.3% 78.1%
Debt $14.5 trillion $327,000 $114,434
Debt/Income ratio 667% 564% 182%
Net worth $15.81 trillion -- $455,173
Debt/Worth ratio 91.7% -- 25.1%

What surprised me about these numbers is that the average household net worth was as high as that. Remember these numbers are from 2009: Two years into the recession, after the housing market collapse destroyed a lot of value by pushing home prices down.

So yes, American families are doing a better job of managing our money than the federal government is. But remember this is a democracy, and the people in Washington are only there because enough citizens voted for them. The only way to see real change is to contact your senators and representatives and tell them what you expect from them. And then, when they are up for re-election, hold them accountable for the job they have done. Or failed to do.

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