For years, the national debt has been rising steadily upward. But every time someone tries to warn about the unsustainable nature of that rise, the media steps in to tell us not to worry.
“We owe it to ourselves” is a common retort. Or you might read that the government can’t possibly default because it can just create more money to pay off the debt. Yikes!
The economic ignorance in such statements is mind-boggling, but then again, newspapers have a narrative to push. And for years that narrative has been to downplay the debt and pretend like nothing is wrong.
The national debt, however, is now so large that just the interest costs of servicing that debt are now poised to rise to over $1 trillion annually. Just imagine that the interest costs on the national debt will now be larger than the defense budget, or larger than Social Security payments.
That’s a lot of money that could be put to better use doing other things, but it can’t because the government can’t keep its fiscal house in order. And now the media is finally realizing how problematic that is. But is it too little too late?
They’re Always Saying That!
Another common message you might hear is that those going on and on about how dangerous the size of the national debt is are just permabears who are always focusing on doom and gloom. How many times have you heard someone criticized about their focus on the negative, with phrases like “Oh, he’s always bearish; someday maybe he’ll be right for once,” or “He’s predicted ten out of the last three recessions.
People who ignore those warnings are like travelers on a sightseeing train that is about to run off a cliff because a bridge is out. They're sitting there looking at the beautiful scenery beside the train, and ignoring the guy who’s looking ahead and warning that the bridge is out. “What’s he going on about, everything’s fine!”
Those who warned about the dangerous growth of the national debt knew that at some point their warnings would come to fruition and that their work would be vindicated. But it gives them no pleasure to say “I told you so,” because this is a crisis that could have and should have been averted.
Federal debt growth has been unsustainable for well over a decade, starting in the aftermath of the 2008 financial crisis and growing worse since then. While there have been a few years in which the annual budget deficit has declined from the year before, we’re once again looking at upcoming fiscal years in which the deficit could reach or exceed $2 trillion.
With the national debt already closing in fast on $34 trillion, the growth in the size of the debt isn’t slowing down, and could continue to grow exponentially. And now more and more people are realizing that that’s a problem.
Possible Debt Downgrade
Two of the three major US credit rating agencies have already downgraded US federal debt from its former AAA rating. The third one, Moody’s, has just recently changed its outlook on federal debt to negative.
While this doesn’t necessarily mean that a downgrade is coming anytime soon, it is nonetheless problematic. If the federal government can’t get its act in gear, a downgrade could come sooner rather than later, costing the government its last prized AAA rating.
With Congress currently navigating a potential shutdown at the end of the week, and continued fights over spending in the coming years, there doesn’t seem to be much hope that anything will change in the near future.
If another downgrade were to occur, it could mean that the government would have to start paying higher interest rates on its debt, exacerbating the existing problem of rising costs to service its debt. In fact, the more unfunded spending the government does, the worse the debt cycle gets.
More deficits require more debt issuance, which requires more interest payments, which requires more debt issuance, etc., until eventually you reach a point where you’ve entered a doom loop where you’re just issuing more and more debt to pay off your previous debt.
When exactly that might occur is anyone’s guess, and it’s as dependent on investor willingness to continue loaning money to the US government as it is dependent on the US government to start balancing its budget. But neither Republicans nor Democrats seem willing to sacrifice to do anything to rein in federal government spending, and so the cycle continues.
How the National Debt Impacts You
As the US government’s fiscal position continues to deteriorate, the threat of higher interest rates remains one of the most pressing problems. And the worse the government’s credit rating becomes, the higher interest rates could rise.
This means that rates on mortgages, auto loans, credit cards, etc., could all rise as a result of Treasury rates rising. While rising rates can be a good thing in certain circumstances, such as when you want to earn high interest rates on your savings, for the most part higher interest rates impact the economy and financial markets negatively.
Businesses often fund their operations and growth with debt financing, and the higher the cost to finance that debt, the less they’re going to be able to expand and grow. Higher interest rates on mortgages and auto loans will continue to depress demand from consumers.
The higher the national debt climbs, and the worse the US government’s credit rating gets, the higher interest rates could rise, irrespective of anything the Federal Reserve does.
That’s why many people today are trying to position themselves for a world of permanently higher interest rates. They’re trying to protect themselves against the uncertainty of the future, of the possibility of recession or financial crisis, and the destructive effects of massive debts and the inflationary monetary policy that may very well ensue in order to service these debts.
And that’s why so many people have settled on gold as their solution of choice. Gold has a long reputation as a safe haven asset and store of value. It maintains its purchasing power and gains in value even as the purchasing power of the US dollar has declined. In the worst case scenario of a complete collapse of the US dollar, gold could even become currency once again.
Many Americans understand the growing danger of the ever increasing national debt. And they’re determined that the value of their savings and investments is going to be protected.
No matter what happens to the dollar, gold, whether you store it at home or own gold through a gold IRA, is going to be there when you need it most. And the worse the dollar is impacted by the national debt, the stronger gold could end up performing.
If you’re interested in learning more about the benefits of owning gold, talk to the experts at Goldco. With over $2 billion in precious metals placements and over 5,000 5-star reviews, thousands of Americans have trusted Goldco to help them buy precious metals to protect their wealth.
Call Goldco today to learn more about how gold can help you safeguard your financial future.
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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