In order to make sense of the President’s Ten-year Budget Plan, I’d like to suggest you consider the following analogy:
Let’s say you (US Gov’t) go out to lunch every day with a friend (China), and your spouse (US Taxpayers) gives you $10/day for lunch.
So, every day you and your friend go out to lunch, and you order a burger w/fries, milkshake & dessert, and your share of the bill comes to $15 each day. You ask your friend to loan you the $5 you need to pay off the lunch, and they agree. Each day you’ve run a $5 deficit, and every day you are adding that $5 deficit to your debt total, so, at the end of the week, you’ve eaten five lunches with your friend, and you now owe him $25.
The next week, your friend wants you to start to pay him back the money you owe him – so you agree to give him $1/day towards your debt, but that only leaves you $9/day to pay for lunch, but since you’re paying your friend back, he decides you are a good debt risk, and he agrees to loan you the $6/day you need to pay for your lunch. At the end of the second week you have run a $6 deficit each day, adding that $6/day to your total debt. After paying the $1/day towards your previous week’s debt, you wind up the second week owing your friend $50 (your original $25, less $5 in payments, plus the $30 in new deficit spending).
The third week your friend, who is now carrying twice as much debt as the previous week, wants double the payment each day – $2/day. Your spouse is still only giving you $10/day, so now you only have $8/day to pay towards lunch running a $7 deficit each day – which your friend loans you, reluctantly (he sees where this is going). At the end of your third week you’ve paid $10 towards your debt, but you added $35 in new deficit spending, making your total debt $75.
Now owing 50% more than the previous week, your friend demands a payment of $3/day towards your debt. The fourth week your friend balks – “You can’t keep spending $15/day on lunch if you only have $10/day to spend.” You agree, tell him you’re taking your obligations seriously, and decide to forgo cheese on your burger, lowering your cost of lunch to $14.50/day. You friend appreciates your attempt, but after noting it isn’t enough you promise to cut back more in the future. At the end of the fourth week, after paying $3/day towards your debt, you still owe $7.50/day towards your $14.50 lunch. Your total debt is now $97.50 ($75-$15 repayment plus $7.50×5 in new deficit spending).
Now, in the fifth week your friend has had enough. They refuse to cover the cost of dessert, lowering your lunch bill each day to $11.50/day. You complain, but your friend is adamant – you agree. So, now paying $4/day in debt repayment, you are left with only $6/day for lunch. You and your friend celebrate your new-found frugality, yet at the end of week five, you now owe $105 ($97.50 less $20 in debt repayment, but with $27.50 in new deficit spending your total debt is now $105).
If, for the sixth week, you found a way to eliminate deficit spending and were able to feed yourself for $6/day, that would leave you $4/day to go towards debt repayment it would take you over 5 weeks to pay off your debt.
Sure, you could have asked your spouse for more money, but then she’d be mad at you, and maybe look for another partner who would promise to feed themselves on $10/day – and you don’t want that, so you try to work it out with your friend. but the numbers are against you and your friend decides he’s going to start demanding interest payments.
This is pretty much what is going on in the Gov’t with our budget today – the President is planning on cutting back on the cheese, and promising to consider cutting the dessert if it can be worked out in a bipartisan manner…
White House: The Budget for Fiscal Year 2012 (See Page 171)
White House YouTube Video: Presidential Press Conference on 2012 Budget (Go to 17:30 into the video to see Chip Reed ask President Obama about how adding $7 Trillion in debt is “living within our means”)