National Deficit Poised to Head Higher

For a few weeks now, the idea of a second economic stimulus package has been floating around. The new package, is expected to be less about handing out checks and more about propping up certain sectors of the economy. And, while it wasn’t getting a lot of traction prior to the election, it is being turned to again now. Yesterday’s announcement of a Chinese stimulus package probably has a lot to do with it.

As a result of a likely second stimulus package, the national deficit, which has already blown past $10 trillion, is going to head higher. There is no getting around this. Indeed, while I like Barack Obama’s plans better than John McCain’s, there are some thing that I disagree with him about — and he is likely to break the following tradition (hat tip: Green Pastures)

Truthfully, though, I don’t think John McCain’s policies would have helped the national deficit, either.

Applying the national deficit to personal finances

The lessons learned by this national deficit can be applied to personal finances. First of all, I think the issue of interest becomes rather apparent when we consider the national deficit. According to federalbudget.com, fiscal year 2008 (which is different from a normal year) saw payments of $412 billion in interest. That’s money that goes to nothing more than paying for the privilege of borrowing.

This is true in your personal finances. Consider your debt. Ever feel like, when you pay the minimum, you are getting nowhere? That’s because, essentially, you aren’t getting anywhere. If you have a $1,000 balance on a credit card at 12% APR, you are paying a minimum of $15-$25 per month, in all likelihood. $10 of that is going to interest. You can see how much longer it takes to pay down debt when you are only paying the minimum.

Another issue is instant gratification and quick fixes. We’re sort of in this national deficit mess because the government wants a bunch of quick fixes and the instant gratification that comes with being re-elected. In our personal finances, we fall prey to the same mindset. Credit allows us to have something now, with very little immediate paid. And as things add up, we rationalize it away, saying that it’s “acceptable” debt or that we really “need” what we’re getting.

There are a lot of parallels between government spending and how citizens spend. And those parallels could to extend to financial collapse as well.