Thomas Jefferson thought of "public debt as the greatest dangers to be feared." If he's right, then we have a lot to fear. The United States' national debt just hit a new high of $31 trillion dollars, and is only going up.
Size of the Debt
The national debt is 75 times higher than it was in 1971 when the U.S. left the gold standard. Back then, the debt was 35% of gross domestic product. Today, it is 125% of GDP. In more concrete terms, the debt breaks down to $93,000 per person or $247,325 per taxpayer. 1
United States' runaway national debt has the capacity to collapse the entire global financial system.
The debt ballooned by $7 trillion during the pandemic. The Committee for Responsible Federal Budget estimates $4.8 trillion will be added to the deficit by 2031. It predicts that as interest rates increase, the carrying costs on the federal debt could triple from $400 billion to $1.2 trillion this year. Within a decade, interest on the debt would be more expensive than national defense or Social Security. 2
The Doom Loop
The bulk of the $31 trillion debt is held by the Federal government and the U.S. public. Some people say debt doesn't matter if we owe the money to ourselves. Theoretically, the government can refinance its debt indefinitely. Maturing debt can be replaced with new debt at a higher rate.
If you constantly roll it over, it never needs to be paid back, right? Not necessarily. Money isn't free, and interest on the debt must paid (otherwise no one is going to loan you money anymore). Eventually, the nation will enter what economists call a "doom loop." This is a vicious cycle that forms when governments borrow to pay interest. This, in turn, generates more interest and leads to more borrowing. Over enough time, a nation's entire GDP will be dedicated to paying interest.
I can say, without exaggeration, that the United States' runaway national debt has the capacity to collapse the entire global financial system. The U.S. dollar left the gold standard and became a fiat currency in 1971. The power to print money on demand opened the door to today's record inflation, soaring interest rates and recession, all of which tie back to the national debt.
Debt Fuels Inflation
When the Treasury sells bonds to cover a government deficit, they introduce more dollars into the system. This action reduces the value of each dollar. As the dollar declines in value, purchasing power decreases and prices rise. We can see this in today's inflation.
After $7 trillion was pumped into the economy during the pandemic, inflation soared to a 40-year high. For comparison, let's look at precious metals. Unlike dollars, a government cannot simply "print" more gold. As a result, the value of gold has increased as the purchasing power of the dollar decreased. The same ounce of gold now costs more dollars to acquire.
Inflation is on track to become a permanent part of our economy.
Debt spurs inflation in another way. Businesses must compete with the Treasury to sell bonds. By offering higher yields, their debt becomes more expensive. These costs get passed onto the consumer as higher prices for goods and services.
Inflation is on track to become a permanent part of our economy.
Debt Forces Spending Cuts & Increased Taxes
The cost to service the debt continues to grow. By 2029, interest payments will exceed the cost of our national defense. This leaves less tax revenue to spend on government services, which means either programs must be cut, taxes must be raised, or a combination of both. Our government will lose the ability to deal with crises, promote economic growth or strengthen national defense. 3
Debt Can Lead to Recession
The rising interest rates needed to maintain demand for government bonds can set off a chain of events that ends in severe recession.
High inflation forces people to stop consuming and investing. This is deadly for an economy where consumer spending comprises 70% of GDP.4
Reduced spending from businesses and individuals eventually forces the economy into a recession. Without the possibility of government stimulus or private investment, there is little chance of the economy clawing its way out. It's more likely to sink further into a Depression.
Default and Collapse
Our astronomic debt could eventually paralyze the government. Its only function will be to collect taxes and pay interest. The doom loop will become unbreakable.
Until, one day, with nothing left to cut or tax, the government defaults on its payments. Unable to borrow any more money, it will effectively be "closed." The USA will join the collection of failed economies typically seen in the developing world.
What Future Collapse Means Today
The possibility of a debt-driven collapse is eroding confidence in the U.S. dollar as the world's dominant currency. Eventually, our accumulated debt and interest payments will reach levels the markets find intolerable. Faced with such uncertainty, other countries will dump the U.S. dollar as their reserve currency.
The national debt is ultimately a national security issue. Foreign investors own almost $8 trillion of our national debt.5 Other countries will be able to make political demands to keep their investments flowing in. We are facing a loss of not only economic power, but also social and political power.
What You Can Do
Perhaps the problem bigger than the debt itself is our collective unwillingness to do anything about it. Our best option is to protect our own individual assets. Precious metals are one of the few assets that can endure the financial collapse debt is bringing us to. Government can print money until it's worth less than the paper it is printed on.
However, what they cannot print is gold and silver. Typically, as debt wipes out the value of fiat currency, the value of gold increases.
Experts suggest that if you are interested in protecting your wealth from the disastrous effects of our runaway national debt, you should be looking into precious metals. A Gold IRA can preserve your funds against inflation, recession, and currency collapse.
Max Baecker is the President of American Hartford Gold, the nation’s largest retailer of gold and silver. He is committed to American Hartford Gold’s mission of helping clients achieve long-term financial security by providing them with unparalleled knowledge on precious metal markets and products.
Max specializes in helping clients build long-term wealth through the security and stability of precious metals. Under his guidance, American Hartford Gold has delivered over $1.5 billion in precious metals to thousands of satisfied clients.
American Hartford Gold is the #1 ranked gold company in the prestigious Inc. 500 2021 List of America’s Fastest-Growing Private Companies. It holds an A+ Rating from the BBB and a 5-Star Rating on Trustpilot with thousands of 5-star reviews. AHG offers investment-grade gold and silver coins and bars at competitive prices. Clients also benefit from its buy-back commitment with no back-end fees. American Hartford Gold is the only precious metals company trusted and recommended by Bill O’Reilly and Lou Dobbs. To learn more, visit American Hartford Gold.
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