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Getting back
to Dave Ramsey's example, which I've seen flying around facebook: Should household income compared to the federal budget, as Ramsey does below? Or should household income be compared to GDP, as in most of the prior posts in this thread? I was going to reply to a friend's very popular FB posting of Ramsey's piece by using the GDP comparison, but then wondered how to justify that. Thanks for an explanation of why it's better to compare to GDP than the federal budget in this example. ------------------------------ Message: 33 Date: Tue, 9 Aug 2011 10:08:24 -0700 From: Jim Devine <[email protected]> Subject: Re: [Pen-l] More on comparing U.S. debt position to household To: Progressive Economics <[email protected]> Message-ID: <caprjvjn_kbzp1xeeit4b5ivse5+tcbxqaobua8fm7ggsnzh...@mail.gmail.com> Content-Type: text/plain; charset=ISO-8859-1 speaking of which, a household or a corporation can go bankrupt while the US government is unlikely to do so in the foreseeable future. (Bankruptcy is much more than "default," which seems to inability to pay bills due to cash-flow problems.) On Tue, Aug 9, 2011 at 9:04 AM, Doug Henwood <[email protected]> wrote: On Aug 9, 2011, at 9:55 AM, Bill Lear wrote:Example: ? ?If the US Government was [sic] a family, they would be making ? ?$58,000 a year, they spend $75,000 a year, and are $327,000 in ? ?credit card debt. ? ?--- Dave Ramsey, who advocates we handle money "God and grandma's way" What's wrong with the picture above?For one, the U.S. Treasury pays almost 0% on bills and about 2.5% on 10-year notes. Credit card interest is, what, 15%? Actually household debt is about 120% of after-tax personal income - credit cards and the like around 20% and mortgages around 90% (with some other miscellaneous stuff thrown in). But just looking at that ignores the asset side, which is almost 620% of income, including 140% for residential real estate. I have no idea where that $327,000 figure could come from. Federal debt is about 70% of GDP. Applying that to family income would mean about $40,000 in debt. And at an interest rate that's a fraction of credit card interest. Who's Dave Ramsey? Doug -- Nicole Woo Director of Domestic Policy Center for Economic and Policy Research (CEPR) 202.293.5380 x108 woo @ cepr.net www.cepr.net |
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