When Will the Economic Collapse Happen? What Will It Be?

As of July, 2012, the average American family had an annual income of $43,000 and an average debt of $117,950. In this study U.S. households numbered about 115,000,000.  That comes to a total citizen indebtedness of about $13.5 Trillion.  The national debt, on money already spent by the U.S. government, is now around $16 Trillion.  That put a total debt burden on the average U.S. household of $256,521 compared to an average income of only $43,000. While the total U.S. household debt was reduced in 2010, it increased again in the past year. This means the average household is currently not paying down their debt, but rather adding to it.  This situation is worsened by the fact that and the federal government is currently spending money at about twice the rate that it is taking in revenue, which means it would need to cut its non-debt servicing spending by 50% to keep from increasing the national debt.  Next consider that as of June, 2012, the national savings rate, that is savings divided by total income, was 4.4%.  That means the average household has no more than $1,900 per year that could be applied to the total debt (both paying down the national debt through additional taxes and paying down their personal debt.)  So, if the federal government suddenly cut its total budget in half, and if every household completely stopped saving any money for any reason (e.g. retirement savings) it would take 135 years to pay off the current debt. Remember, however, there are several additional concerns not considered in that calculation.  These numbers do not include any of the state governments’ debts, which the citizens are also responsible for paying. Another very big consideration is that most economists agree that cutting the federal government’s spending in half would surely trigger a serious recession, resulting in more job losses (laying off government workers and reducing government contracts which also pay for non-government jobs), and thus less money would be available among the American households to pay down all the debts.  Conversely, economists also understand that if the government significantly increases taxes in order to increase the revenues, this would also slow down the economy, which is already on the verge of a recession.

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