Through the course of reading, I often come across articles, charts and graphs, and other items that I find interesting. Having spent years passing these along to family and close friends, I have been encouraged to pass them along to STUDIO clients as well. I hope you find them interesting, and maybe even useful.
The first STUDIO Note addresses U.S. federal debt. In a recent presentation, FPA Capital of Los Angeles included data (original attached) that offered great perspective on the financial position of the U.S. government. It included the budget and debt estimates for 2012 in blue below:
(1) U.S. tax revenue of $2.6 trillion
(2) U.S. budget expenses of $3.6 trillion
(3) 2012 increase in debt of $1.0 trillion
(4) U.S. national debt of $15.9 trillion
(5) U.S. unfunded social insurance of $30.9 trillion (current Social Security, Medicare, and Medicaid shortfall)
(6) U.S. total debt of $46.8 trillion
(7) U.S. recent budget cuts of $22 billion
Most of us know that the numbers are bad, but they are so big that they don't translate into anything meaningful. To help interpret, FPA scaled the U.S. government numbers to that of a median family. In other words, if the U.S. federal government were a family, its 2012 profile could be seen in red below:
(1) Family income of $50,000
(2) Family spending of $68,000
(3) 2012 increase in credit card balance of $18,000
(4) Family credit card balance of $301,000
(5) Family retirement savings shortfall of $583,000
(6) Family total debt of $884,000
(7) Family recent budget cuts of $400
When framed in this manner, the size of the debt problem becomes clear. Even if this family could grow money on its trees, would you lend to it for 10 years at 2% per year? The U.S. government can (sort of) print its own money, and it borrows for 10 years at 1.97%.
I also should add that the unfunded social insurance figure of $31 trillion (item 5 in blue) is estimated by other parties to be much greater -- $70 trillion or more by some. And the initial budget cuts of The Budget Control Act of 2011 (item 7 in blue for the government, corresponding to item 7 in red for the family) obviously were not worthy of mention, relative to the size of the deficit and debt.
The U.S. debt picture is disconcerting, but it is not insurmountable if dealt with soon. While not warm consolation, we are in much better shape than Europe. And Japan is no better, and probably worse, in my opinion.