Wednesday, September 21, 2011

An outstanding explanation

This is a magnificent example of good communicating skills. There has been lots of discussion about why the United States had its credit downgraded, and whether it should have, and whose fault it is. And you all, Gentle Readers, have heard the numbers being tossed around about the debt, the deficit, budget cuts, etc. -- and it probably hasn't made much impact because all the discussion is in terms of numbers with vapor trails of zeroes after them.

So some folks in Gainesville decided to help us all understand. Their suggestion is quite simple:

1. Knock ten zeroes off all the numbers.

2. Now pretend that we're talking about your next-door neighbors' household budget, and ask yourself whether, if you loaned them any money, you would really expect to get your money back.

Here's the story, and the numbers. Your neighbors -- call them "Sam and Diane" -- are in debt. They just spent a couple of months in a bitter argument because they had bills coming due that they couldn't pay, and Sam was saying, "We have to pay this bills so let's use the credit card," while Diane was saying, "I agree that we have to pay the bills, and that we'll have to use the credit card, but before I sign off on that you have to agree to start getting our spending under control." And it took them two months to agree on how much they would cut their spending before piling more money on the credit card. Now here are the numbers from their household budget (remember, these are the actual U.S. budget figures, just divided by 100,000,000):

Annual family income: $21,700.
Money the family has spent so far this year: $38,200.
New debt on the credit card: $16,500.
Outstanding balance on the credit card: $142,710.

And the amount of budget cuts that Sam agreed to after the two-month battle with Diane?

Budget cuts: $385.

Now, do YOU think Sam and Diane will ever pay off that credit card debt? Do YOU think these two have a hope in hell of avoiding bankruptcy? Would YOU loan these two any money? And if you did, would you be able to tell me with a straight face that you expected them to pay you back? Would YOU be happy with ME if you had asked me, "Are these guys reliable?" and I said, "Oh, yeah, they're Triple-A, your money is safe," and then after you loaned them the money you saw that set of budget figures? And if Sam were running around telling all his friends, "It's that crazy bitch Diane's fault that our credit rating is bad, because she tried to make me promise to start getting spending under control before running up more credit card debt when all that really mattered was making sure people knew our bills would be paid this month -- if she had just agreed to run up the credit card further without making all that fuss about it our credit rating would still be golden" -- if Sam told you that, would you agree with him or would you laugh in his face?

And now you understand the Standard and Poor's downgrade. The only difficult thing, actually, is understanding why ANY credit ratings agency would give Sam Obama and Diane Boehner -- or, more fundamentally, the genius voters who elected them -- a AAA credit rating.

HT: Carrie Lucas.


At 8:37 PM, Anonymous Anonymous said...

Well according to the republicans, you can cut that debt by taking a pay cut.

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