The current amount of government debt — $16 trillion in bonds and other securities and $109 trillion in unfunded commitments to programs like Social Security and Medicare — is too staggering to grasp. Ken Davis, a former corporate finance officer (and former “client” of mine), writing in the Richmond Times-Dispatch, puts it into more comprehensible terms.
Ken posits a family of four living in Richmond and making $125,000, which he says is the median income for an American two-income professional couple. This hypothetical (I assume) family owns a home worth $450,000 on which it owes $266,000. It also owes $34,000 in loans on two cars. The cars and its other personal property are worth $45,00. Finally, the couple has savings and investments that add up to $76,000.
The young couple believes its net worth to be about $270,000, the amount by which its assets exceeds its liabilities — the debt on the house and the cars. But this calculation fails to consider the household’s portion of federal, local, and state debt and unfunded government financial commitments.
That amount, according to Ken, is $1,069,100. If it’s considered a liability, the family is suddenly almost $800,000 in the hole.
And the liability associated with government debt isn’t merely a paper one. As Ken explains, the government will have to make good on its debt and can be expected to do so, at least in part, by raising taxes. For his hypothetical family “higher taxes will cut into disposable income, hurt the economy, and reduce the value of their home and other investments.”
Americans may not be calculating the consequences of the nation’s astronomical debt in quite these terms. Nonetheless, there is, finally, a widespread sense of dread about what that debt means. This sense may be the defining sentiment in American politics for some time to come.
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