Updated: September 2013

The U.S. economy as reflected in its national budget may not be easily understood as it contains too many zeros and the very terms by which the huge, unfamiliar numbers are represented may not ring a bell to the average person.

In order to bring light to people’s minds, I make an analogy of the U.S. budget to a family budget, which leads into an insightful discussion of the U.S. economy.

The U.S. Economy in Layman’s Terms

By Dan S. Barnabic

First, consider the U.S. budget as seen at www.usdebtclock.org Sept. 17, 2013:

The U.S. budget

  • Tax Revenue:  $2,686,000,000,000
  • Fed budget:  $3,518,000,000,000
  • New debt:  $832,000,000,000
  • National debt:  $16,942,000,000,000

The astronomical numbers above may become easy to understand if you simply remove 8 zeros from the above numbers and replace the quoted terms to more familiar everyday phraseology used by most of us. All of a sudden, you will find the perfect analogy to your own hypothetical family budget. This will give you a simple and straight-forward insight into the troubled U.S. economy.

Hypothetical Family budget (8 zeros removed)

  • Your annual family income:  $26,860
  • Money your family spent:  $35,180
  • New debt on the credit card:  $8,320
  • Outstanding balance on credit cards:  $169,420

Is the U.S. budget making more sense now? It is obviously, beyond any doubt,unbalanced and completely out-of-whack. Finding yourself in such a financial predicament, you’d be wise to get in touch with a trustee and seriously consider bankruptcy as your family would not be able to sustain itself any longer.

Likewise, the U.S. economy cannot sustain itself on its present unbalanced budget. The driving force of any country’s economy is its consumer spending. But the U.S. economy can no longer count on its heavily indebted consumers to go out and spend more money on consumer products.

Besides an average family’s own private financial burden, the national debt per each taxpayer amounts to $136,139. It is quite evident that the future of American citizens, their children and even grandchildren, has already been mortgaged.

To make matters worse, the national debt is increasing rapidly and at an alarming rate. The U.S. Congress was asked in 2011 to approve a national debt increase of 3 trillion dollars. This basically meant issuing more government bonds and printing more money, increasing the national debt.

By analogy, the same debt increase to your hypothetical family budget would increase the outstanding balance on the credit cards to $183,950.

In fact, the U.S. economy already seems either bankrupt or near bankruptcy, but there is no trustee out there to turn to for help. There are only the impoverished average taxpayers to foot the bill of debt, those same taxpayers that have seen their real incomes decline in the last ten years or so. Simply put, bankruptcy is not an option. If the U.S. defaults on its national debt, it runs the grave risk of degrading itself to a third world country status. Should the U.S. not come up with a speedy and radical solution to reduce its national debt, its unbalanced budget may lead the country to the heights of hitherto unseen economic woes.

John Mauldin, a noted economic observer, revealed the Fed’s charts in his February 13, 2012, newsletter “Outside the Box,” showing the U.S. debt (as a percentage of GDP) was much higher in 2010 than it was during the Great Depression of the 1930s.

However shocking, this is a sad and plain truth. In fact, Mr. Mauldin goes even further in his subsequent newsletter stating that “The growing national debt and the deficit is a deadly cancer on the economy. It will deliver a mortal blow to the economy if not dealt with as soon as possible.”

Around the same time, the PBS aired an announcement that the Fed’s admitted the U.S. is worse off now than it was during the Great Depression, confirming Mr. Mauldin’s findings.

If it’s any consolation, many European nations may fare worse. However, the U.S. cannot afford to passively watch itself turn “greek.” Practical and radical measures need implementation immediately. A realistic and workable blue print for a balanced budget should be the utmost priority for the U.S. government.

What is a Possible Solution for a Balanced Budget?

Reduce spending and increase taxation on the rich.

The U.S. may not be economically able to maintain its role as international police much longer. Curbing its military spending to fight wars in far away places would help reduce the national budget deficit considerably.

As for the increasing taxation on the rich, the present political philosophy that both Democrats and, especially Republicans seem to adhere to, does not include substantial taxation on the few mega-rich corporations and individuals that own and control over 90 percent of the country’s wealth.

President Obama in his union address in January 2012, announced a proposed 30 percent tax increase on Americans earning more than $1 million as part of his new deficit reduction plan. This sharing of wealth by increasing taxation on the rich, was only put forward in principal and, likely only to appease the electorate before the upcoming election.

In his article, “Obama has no Plan B,” published February 14, 2012, Richard W. Rahn of the Washington Times stated that “Obama knows, and so does everyone else, that Congress is not going to pass the tax increase.”

The inability of enacting the concrete laws for increased taxation makes the solution for a balanced budget very hard to envision, let alone achieve. Nevertheless, here are a few logical, albeit radical proposals, which would move the country towards a more balanced budget:

The first logical proposal:

Introduce taxation, say a dollar, on each trade-stock transaction. That would help stock speculators, including Wall Street movers and shakers reduce the national debt, which they chiefly contributed to originally.

In order to implement such extra taxation, the U.S. would have to persuade Europe and other major economies to do the same so as to prevent the flight of companies trading on U.S. based stock exchanges to exchanges abroad. Europe and other major world economies would equally benefit by such taxation.

The second logical proposal:

Curtail the flight of capital outside the country. Mega corporations should not be allowed to transfer funds to any place outside the U.S., except for payments of trading goods and services, without first paying a hefty tax, say up to 50 percent of the monies intended to be transferred abroad.

A third logical proposal:

Tax all corporations with their head offices in tax havens abroad, just as if they were having their offices headquartered on U.S. soil. By registering their head offices abroad, they become tax exempt. This may be a legal loophole arrangement but it is totally immoral. It was intentionally designed for wealthy individuals and corporations to avoid paying their share of taxes, thereby enriching themselves unjustly at the expense of American citizens.

Conclusion:

Given that the U.S. political landscape is ruled by the wealthy elite, it would indeed take an extraordinarily courageous person to run for U.S. President on this very radical agenda. But surely if such a bold person were to appear in the U.S. political arena, they would be elected President by the voters, irrespective of which party he or she belonged to. Unfortunately, such a person has yet to appear on the political horizon. Meanwhile, maintaining the status quo by issuing more bonds and printing more dollars just to stay afloat, may not bode well for the future of the U.S.

by Dan S. Barnabic