US Debt: Why We Don't Compare Household Finances To Government Finances

I understand the attraction to liken your household finances to government finances. Comparing your income to what you're spending works for households; It's clean, it's neat and it's simple. But comparing Government finances to Household finances is not accurate. The simplicity of our spending (utilities, debt, living expenses) and our income does not apply to the government. Flexo at Consumerism Commentary describes why it’s not at all akin to a family spending more than it earns:

• The government can at any time, at its discretion, increase revenue. It’s not popular, but raising taxes is an option. Households cannot similarly decree that their income increase. People can take certain actions to increase their income, like obtaining more education or training, but these often require even more expenditures. Income-earners can get second or third jobs to help make ends meet, and the farther that goes, it will be emotionally, mentally and emotionally straining on a family. Fact of the matter is, most of us work for money. It's a sad face but it's the hard truth; households aren't as flexible on the revenue side as the government.



• The government can at any time, at its discretion, devalue its debt. Monetary policy comes into play. The Federal Reserve, working alongside the government, purchases government securities, increasing the money supply for banks and consumers. With more money available in the economy, people (but mostly businesses) can afford to pay more, and prices increase, effectively decreasing the purchasing power of a dollar. This is a great position for people who owe money to be in, because the real value of what they owe decreases.
  
  Households, on the other hand, have no control over the money supply and therefore cannot manipulate the real value of their debt.



• Deficit spending helps spur the economy. Throughout the twentieth century, the government was more frequently in a budget deficit than in a budget surplus. The ability for the government to spend freely helped this country become the rich economic powerhouse it is today. With the federal government taking up the slack by investing in the economy during periods in which businesses were gun-shy, the country continued prospering — particularly the middle class. Periods of deficit spending were followed by periods of surplus, but for the most part, deficit spending is linked to this country’s growth.

Is there a risk to printing money? Sure, hyperinflation (very high, rapid monetary inflation) comes to mind. But we are no where near hyperinflation. The U.S. hasn't experienced hyperinflation since the Revolutionary War (when we were 13 colonies) and the Civil War (a divided nation). In fact, we are currently experiencing deflation (more on this in a later post).

The national debt will always be a point of contention but we have to separate the narrative from the facts. My narrative is that I don't believe (based on the bullet points above) that the U.S. Government has a debt problem. I do believe, however, we have inefficiencies in government leadership that leads to ineffective government spending (more government spending to create jobs please, kthanksbai). The fact remains -- we can always print money. And if you continue to compare your household finances to government finances, then ask yourself this:

If you have a machine at your home that can print you money, would you have a debt problem?

Truth bomb go "boom".