Don't blame S&P for the downgrade and the Tea Partiers at least have basic grip on finance. From Agora Financial:
Let’s take a look. Here’s the reality about the debt-ceiling deal that S&P seems to be concerned with... perhaps we’re getting the math wrong too. In any case, we’ll enlist the help of Michael Pento of Euro Pacific Capital: “The debt ceiling agreement virtually assures that over the next decade the U.S. will add an additional $8 trillion in public debt, an increase of nearly 80% in 10 years.
“The back-end-loaded deal will cause the amount of deficit reduction to be just $21 billion in 2012 and $42 billion in 2013.”
If we play with those last two numbers a bit, as David Thomas of Equitas Capital Advisors did in a client letter last spring, we get a federal “budget” that looks something like this:
U.S. income: $2,170,000,000,000
Federal budget: $3,820,000,000,000
New debt: $1,650,000,000,000
National debt: $14,271,000,000,000
April budget cuts that averted a partial government shutdown:
$38,500,000,000 (about 1% of the budget)
“It helps to think about these numbers,” Mr. Thomas wrote then, “in terms that we can relate to. Let’s remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.”
Total annual income for the Jones family: $21,700
Amount of money the Jones family spent: $38,200
Amount of new debt added to the credit card: $16,500
Outstanding balance on the credit card: $142,710
Amount cut from the budget: $385
“In effect,” Mr. Thomas tried in vain to convey, “Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget.
“What family would cut $385 of spending in order to solve $16,500 in deficit spending?”
We know our answer: The same family that would agree to cut $210 from its annual budget next year... and $420 the year after that.
At some point, the issuers of the Jones’ credit cards figure out the Jones family won’t be able to keep up minimum payments. When that point is reached, the Jones’ ability to continue running up their debts comes to an end..