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The Federal Government is Not a Household
People like to compare the federal government to a household. The image to the left is an example of this. Let's leave aside the fact that this image compares the money we spend on the US military to sewage. Even without that analogy, the comparison is poor. Over the past four years the federal government is spending about $3.5 trillion and bringing in $2.5 trillion per year. I have heard people compare this to a household making $25 thousand a year while spending $35 thousand. A household that did that for half a decade would certainly be in trouble. It is true that this isn’t what you want your government doing either. That’s about where the usefulness of this comparison ends.

If your household was losing $10 thousand a year would anyone lend you money? And if they did what would your interest rate be? Creditors are still lending the United States a lot of money. If they weren’t the debt wouldn’t be rising. Not only are they lending the government money, they are lending it at interest rates that are, when you adjust for inflation, negative. That link is to a blog post written over a year ago. Go to the Treasury’s page now. The 5, 7, and 10 year rates, adjusted for inflation, are still negative, while the 20 year rate just flipped to positive a few weeks ago and the 30 year is about a third of a point.

Think about that, our national debt to GDP ratio is about 1:1, our deficits over the past few years having been running at 40%, and we’re still getting an interest rate that no household would ever get. That doesn't mean our deficits and our debt are good things. We should try to balance our books. But the comparison to a household is ridiculous. The United States is the greatest money making machine in the history of the world. We have a lot of public debt but it’s clear to the institutions lending to us that we have the ability to pay them back. And given the interest rates, they think it’s a pretty safe bet. On top of the historical robustness of the US economy, the US federal government is a government, which gives it the power to tax all sorts of things and the resources to collect large sums of money. It owns hundreds of millions of acres of land. Households - especially poor households with a lot of debt - can’t do the things governments can. In fact, if we were to find one such household it would probably be in the process of having its assets taken from it and maybe it would even not have a place to live. This doesn't sound like the federal government of the United States, so stop comparing the two.

Image via Steve V. on Facebook.

 
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