Understanding the National Debt

Suppose a family (say the Smiths) could apply for a family credit card.  The parents, Bob and Ethel, are presently the only ones authorized to use the card.  However, at their death the card belongs to the children, Bob Jr., Linda and Ray.  Once the children start using the card, they are responsible for all of payments.  So Bob and Ethel decide the make purchases on the card in the best interests of the family but they only pay the minimum payment each month.  The balance on the card gets bigger and bigger.

Bob and Ethel pass away.

The kids now have the card with an outstanding balance of $35,000.  The credit limit is $40,000.  The minimum payment stands at $4,412 per month.  Together the kids only make $6,000 per month. 

That’s what politicians mean when they talk about Congress spending money and leaving the obligation to pay the national debt to our children.

Enhanced by Zemanta

Leave a Reply

Your email address will not be published. Required fields are marked *