I saw this over at http://www.boingboing.net/2011/04/13/to-understand-the-us.html.

It certainly illustrates the absurdity of the "budget debate" thus far.

Although the part about credit card debt is a false analogy. US debt is denominated in dollars, which it creates out of thin air. It doesn't actually owe this money to anyone, nor does it borrow it from anyone to actually pay for things. When it needs to buy something, it creates enough dollars to pay for it. When it receives revenue, it destroys those dollars. In order to control interest rates, it goes to the trouble of creating bonds which it sells, but bonds are effectively cash equivalent.

To properly extend the parable:

The family paid for everything with money it made in the basement. They bought things from their neighbors with this money, trading basement money for real goods. The neighbors often traded the basement money amongst themselves, then used it to buy things that the family made or no longer needed.

In this way, the family never actually ran out of money or went broke, but the neighbors could certainly refuse to do business with the family. Sometimes this happened, but usually hurt the neighbors more than the family, as the family was enormously rich and well educated and often invented new things the neighbors wanted.

The neighbors often had more basement money than they needed, so the family agreed to sell them IOUs that paid interest. This was not a problem for the family, as they paid the interest with yet more money created in the basement.

We trade fiat money for real goods. The only threat to our economy is if the world decides to stop making things for us in exchange for our made-up money, or attacks us militarily. Our current status as the predominant industrial/military power prevents that right now.

And if we pay down the debt? Of the $13 trillion, $8.2 trillion is public debt (the rest is gov agencies owing each other). About $4 trillion is held by foreign entities, and $4 trillion by US savers. Paying off the debt would reduce the nation's savings and pension accounts by $4 trillion. How would be pay it off? By raising taxes I guess. So we would tax person A to pay back person B. Truly robbing Peter to pay Paul.

tl;dr - Government finances are not like family finances, not even by analogy, because Governments create their own money. I wish we'd stop trying to make this analogy happen. It leads to false reasoning, like the idea that the US government is somehow 'broke' or can't pay its bills.