Super Committee FAlL

The Super Committee has now failed to reach a deal to cut a measley $1.2 trillion over 10 years.  Although this is obviously ridiculous, and we don't really need an explanation of that, it is always fun to hammer Congressional failures.

The CBO estimates that the government will spend $45.7 trillion in the next 10 years but will only bring in $39 trillion in revenue (what's another $6.7 trillion to our debt, anyway?).  How embarrassing is it, then, that the Super Committee could not cut $1.2 trillion from the projected $45.7 trillion in government spending?

Well, let's put it into perspective (in a very simplified manner).  Let's say there is a young couple that makes $150,000/year and over 10 years they will bring in $1.5 million together.  They've been known to borrow and spend more than they have (even they are fully aware of the problem), making their parents and family nervous for their future.  This trend continues and the couple is on their way to spend a little over $1.76 million over the next 10 years, which means they will accumulate a total debt of roughly $260,000.  Recognizing the fact that this is unsustainable, the parents of the young couple finally intervene and tell them to start cutting back on the excessive spending.  The couple then sits down and decides that they are willing to make a change.  They are going to cut $47,500 from their future spending and reduce their projected debt to $212,500.

S&P Downgrades the United States's Credit Rating to AA+

For the first time in history, the United States government lost its perfect AAA credit rating from S&P on Friday, August 5th, 2011. The decision was made because of the growing debt problem America faces — a problem that isn’t going away.

S&P states:

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics. 

The recent downgrade will lead to higher borrowing cost for the United States, which could translate into higher interest rates for businesses and consumers. S&P has been threatening to downgrade the U.S. for months, but Washington has refused to take heed.

Other agencies, such as Moody’s Investors Service and Fitch Ratings, still rate the United States AAA, but have threatened to take action if Washington does not rein in their debt problem. Maybe this will be a wake-up call for Washington that recklessly spending trillions of dollars and kicking the fiscal can down the road isn't the perferable way of solving America's economic problems.

Read the full report here and here.

What Does Debt Look Like?

In less than two weeks, America will hit the deadline for a deal to get done that would raise the debt ceiling, or run the risk of the country going into default (if you believe the default-or-nothing rhetoric that is). But default or not, we will still face a nearly $15 trillion debt that will be difficult to pay down, regardless of how big the "grand bargain" Washington is cooking up will be.

Did you know, though, that $15 trillion is mere peanuts compared to another barometer of our debt? You see, there is another measure, called "unfunded obligations," which is how much money the federal government needs to fund entitlements and other non-discresionary spending programs that it won't have in the future. The number is calculated based on demographic changes and potential future tax reciepts. The amount on that: $114 trillion.

To give you an idea on how much money that is, a website called wtfnoway.com divided our debt into $100 bills, and put the amount of money we owe into a visual presentation that truly captures how much we're going to owe if we don't make needed changes to the system soon.

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