Government offers poor example for debt management

10.08.09
By Timothy Green

Consumers who are worried about debt management would do well not to take their cues from the federal government.

That's because the Congressional Budget Office has announced that the federal budget deficit grew by nearly $1 trillion over the past fiscal year, to a new high of $1.4 trillion. The new figures are due to a combination of falling revenues, which declined by 17 percent, and higher spending, which increased by 18 percent.

The federal deficit now stands at about 25 percent of the gross domestic product, which is the highest level recorded since the end of World War II.

The latest figures present a sharp contrast with a nationwide trend of consumers paying down their debts by substantial margins, with the latest government report showing that credit card debt plunged at a 13.1 percent annual rate in August. Americans now owe a combined $899.4 billion on revolving debt, which is the lowest level since 2006.

Looking ahead, both consumers and the government could benefit from an improving employment trend that finds fewer jobs being eliminated. According to the Department of Labor, 521,000 workers filed for first time unemployment benefits.

This shows that jobs are still being lost in the current recession, but also provides reason for some measure of optimism because the number of unemployment declines has declined noticeably in recent months.

A survey from Thomson Reuters had also predicted that 540,000 workers would file for first time unemployment benefits, indicating that economic activity may be stronger than expected at the present time.

Moving ahead, job creation will be key for the government because the tax revenues new jobs generate will be essential in paying down the deficit, while struggling workers will find debt management more feasible if they are able to find employment.

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The government's debt is rising even as consumer debt is shrinking.