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April 16, 2015, 05:11:52 PM |
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Also, our yearly expenses are about $194k. From /u/elitestasshole over on Reddit comes a scary tale:
Firstly, these Treasurys are the responsibility of the US government, not the whole USA. The US government, in theory, has the power to tax its citizens to pay back its debt. But in practice it can't tax everything from you, and the government doesn't own what every american owns. Case in point: the Greek government is broke and has defaulted, despite their citizens still owning trillions in asset.
Second, while our GDP is $16 ~$18 trillion, federal tax revenue in 2014 was only ~$3trn, or 17% of GDP. However, federal expenditure was $3.5trn in FY2014. This means that we ended up with $500bn in deficit last year. The accurate analogy would be that we have $1m in total debt ($80k owed to china), $170k in income, and $194k in expenses. Of course, I'm not saying that we should manage the national debt the same way we manage household debt. In theory, nations (and corporations) can be in debt forever as long as the debt/GDP ratio (or debt to invested capital, in the case of corporations) is stable.
Lastly, to accurately measure the impact, we should exclude Treasurys held by the Federal Reserve and governmental accounts, increasing China's holding percentage up to ~15%. Nothing too scary but certainly not insignificant. A hotly-debated, highly-influential paper by Reinhart and Rogoff (both of Harvard) argues that external debt (basically all debt - government, private and household - owed to foreign creditors) exceeding 60% of GDP could reduce the growth rate by two percentage point. External debt > 90% of GDP could result in the growth rate being reduced by half.
At ~102% to GDP, Our debt as % of GDP is way better than many european countries. But it's in no way great, given the economy is expected to grow at 2-3% a year in the long term, and the rate could rise as soon as June, according to the most recent FOMC minutes.
Frightened, I posted these numbers as a concerned home owner to the personalfinance subreddit and received some wisdom from the money gurus there, starting with /u/loopy212:
"This is going to sound like generic advice, but you need to get your finances under control."
"You've been living far beyond your means for a considerable period of time. It doesn't sound like you even grasp how bad your situation is; assuming a relatively modest average interest rate of ~8%, you may not be able to repay that debt in the course of your lifetime at your current income levels."
"It's going to be painful one way or another to get this under control. Commit to it and start being logical and you might have a chance."
At least we're not paying 8% interest, but still.
And here's some more outstanding advice from /r/personalfinance:
"Bankruptcy or drastically cutting back your lifestyle to live on half your income for the next give or take 15 years while you pay down your debt. You are in a horrible financial situation, the worst I can recall to have posted here in a long time."
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