Tags: inflation | credit | national debt | volatility | savings | gold

4 Reasons the Debt Bubble Is Getting Worse Than Ever

4 Reasons the Debt Bubble Is Getting Worse Than Ever
(klublub / 123RF Stock Photo)

Trevor Gerszt By Friday, 20 October 2023 10:33 AM EDT Current | Bio | Archive

Debt is a lot like fire in that it can be a useful servant but a cruel master. For most people, debt is an unavoidable part of our reality. While many people can afford to pay cash for a car, most of us don’t have the cash on hand to be able to buy a house.

Credit cards, student loans, and other forms of debt are widely used by millions of people. Mortgages are ubiquitous, and hardly a household in the country doesn’t make use of debt in at least some way.

For those who are disciplined in saving and investing, debt can be a useful tool to manage their asset accumulation and wealth creation. But for many others debt can be the road to financial ruin.

Sometimes it isn’t even our fault that debt buries us. An unforeseen medical procedure, an unexpected layoff, or a freak automotive accident can all lead to people having to take on debt that they never intended to. And in an era in which interest rates are the highest they’ve been in over 15 years, paying off those debts is getting more difficult than ever.

The debt bubble that exists today isn’t any secret. It has existed for years. But today it’s growing larger than ever. And here are four reasons it’s getting worse than ever.

1.)  US Government on a Borrowing Binge

Remember the 2008 financial crisis, and how bad the debt bubble was back then? Remember how indebted the federal government was back then? Well, it’s gotten way worse.

At the beginning of 2009 the U.S. government’s total debt was $10.6 trillion. Today it’s over $33.5 trillion. That’s a tripling of the national debt in just 15 years.

Even worse is that the government is running budget deficits that would make even a drunken sailor blush. For Fiscal Year 2023 the expected deficit is now expected to be nearly $2 trillion, this in a year without a major financial crisis or war.

To give you some perspective, it took from 1789 to 1981 for the U.S. government to build up its first $1 trillion in debt. And now, just over 40 years later, the national debt is over 33 times as large, and the annual budget deficit is over twice as large as the entire national debt was back then.

How is this sustainable? In order to run these budget deficits, the government has to sell more Treasury securities. But with rising interest rates, the cost of servicing that debt will grow astronomically.

As of August 2023, it cost $808 billion to service the national debt, equivalent to 15% of the government’s annual spending. And if interest rates continue to rise, both of those numbers likely will as well.

2.)  Record Worldwide Debt

Total worldwide debt just hit a record $307 trillion, an astronomical sum. Most of that was driven by developed countries such as the U.S., which are both spending more money and spending more to service their growing debts.

All it takes is a single black swan event to put many of these countries into severe debt crises, and that event may be coming sooner rather than later. A stock market panic, a bond market default, or another major bank failure could tip the economy into crisis, leading governments whose borrowing costs are already unsustainable to really get themselves into trouble.

3.)  Rising Credit Card Debt

American households now hold more cumulative credit card debt than ever. While the inflation adjusted per capita rate may not be the highest ever, the total amount of credit card debt is the highest ever, and more than triple the amount of credit card debt held in 2007.

Credit card delinquencies are also on the rise, a worrying sign that American households are struggling to pay that increased amount of debt. With debt levels so high already, just imagine how difficult it would be for households to make it through a recession as bad as 2008.

4.)  Problems With Junk Debt

Rising interest rates are causing problems throughout the economy, but particularly for companies with junk-rated debt. Nearly $2 trillion of that junk-rated debt is expected to mature over the next few years, and companies will likely have to pay significantly higher interest rates when trying to roll over that debt.

Higher interest rates aren’t just a problem for companies issuing junk bonds either. All companies are facing higher borrowing costs, making it more difficult to fund ongoing business operations through debt issuance.

For those companies considered zombie companies, which could be up to 20% of public companies in existence, that’s bad news. And for companies that might have been able to service their debts previously, these higher interest rates could push them over the edge into becoming zombie companies.

Protect Against the Debt Bubble

The problem with the bursting of a bubble is that it doesn’t just affect those who engaged in bad behavior. Even those who did the right thing get swept up in the tsunami sometimes.

You may be saving and investing diligently, making regular mortgage payments, and putting aside money from retirement. But a bursting debt bubble that causes a financial crisis will impact you too.

What are you doing to protect yourself?

More and more Americans today are looking to protect themselves with precious metals like gold and silver. They understand gold and silver’s reputations as safe havens and hedges against inflation.

During the stagflation of the 1970s, gold and silver both made average annualized gains of over 30% per year over the course of the decade. And in the aftermath of the 2008 financial crisis, the gold price nearly tripled while the silver price more than quintupled.

Many people who lost money in 2008 watched in agony as the money they had saved up for years or decades was lost in a matter of months. And then they watched as gold and silver, which had been unappreciated until then, went on to hit record highs.

It’s no wonder that so many people are looking to buy gold and silver today, as they expect gold and silver to repeat that kind of performance during the next recession. And with a gold IRA or silver IRA it can be easier than ever to protect your retirement savings with precious metals.

Gold and silver IRAs allow you to roll over assets tax-free from a 401(k), 403(b), TSP, IRA, or similar retirement account into a precious metals IRA, allowing you to safeguard your retirement savings with gold and silver. Goldco has helped thousands of customers buy gold through the IRA rollover process, and with over $2 billion in precious metals placements and over 5,000 5-star reviews, we’re one of the most experienced and trusted companies in the business.

If you’re looking to protect your wealth against the damage that can be done by recession and inflation, maybe it’s time to start thinking about gold and silver. Call Goldco today to learn more about how gold and silver can help protect you against a collapsing debt bubble.

Trevor Gerszt is the founder and CEO of Goldco, a precious metals dealer in Los Angeles. For more than 20 years, Trevor has sought out ways to help people build long-term wealth through the security and stability of precious metals and other alternative assets. Goldco is A+ Rated by the Better Business Bureau, a 5-Time INC 500 Winner and has countless 5-Star Reviews for its quality customer service, dependability and strong reputation.

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Debt is a lot like fire in that it can be a useful servant but a cruel master. For most people, debt is an unavoidable part of our reality.
inflation, credit, national debt, volatility, savings, gold
Friday, 20 October 2023 10:33 AM
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