Back of the Envelop Analysis

Back of the Envelop Analysis

Go figure.  But as i have been digging into this Budget, GDP, Debt issue–things are becoming quite interesting.  Now check this out for some “back of the envelop analysis”.

Census Data–average (mean) income per 78,874,000 families in 2008 was $79,634.  That is the average.

Assume $26 Trillion in Debt (high) but would include $15 T in national debt, $10 T in mortgage debt, and $1 T in individual debt.

Divide $26 Trillion by 78,874 families and this comes out to $329,640 of debt per family.

Amortize that $329,640 over 30 years at 5.00% and yearly payments per family = $21,443 .

Divide that $21,443 by the average 2008 income ($79,634) and you get 27%.  Which by the way is under general lending underwriting guidelines for long term lending.

Granted our debt is going in the wrong direction–that is upwards–however, we cannot forget that family incomes have also been rising as well as our GDP.  Although the ‘debt’ numbers might seem large, i am beginning to think that maybe things are not as bad as they might seem otherwise.

As you know, i never did believe in the Great Depression scenario as it was.  Now tell me what i am missing.

ps.  And just as an aside, during the past thirty years when we have accrued most of that Debt on the books, average family income in constant 2008 dollars rose from around $60,000 to the $80,000 level–enough in other words to cover those $20,000 annual debt payments.

Have a good one.

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