In recent years, it seems that the large size of the U.S. national debt has become a fact of life. Although many politicians have run campaigns on addressing the debt, little has actually been done to effectively reduce its size or the rate at which it may increase in the future. This has led many experts in the financial industry to begin preparing for the potential downsides of maintaining such a large debt, namely downturns in the economy and financial markets. In fact, one source of financial information, U.S. Money Reserve—a leading precious metals distributor—has recently released an informational video on the topic. Below, we take a closer look at the information presented by the company and how it could affect you.
State of the Debt
To get a better sense of the U.S. national debt as it stands today, let’s first dig into the numbers. At present, the national debt sits at $21 trillion, which is the largest in the world. That number is larger than the current GDP of the country as a whole. Not only is the number exceptionally large, but it also carries with it a hefty toll to be paid to debtors.
As with any form of debt, the U.S. is required to pay interest on the money it owes. Much of this is paid to other governments, although it is also paid to private citizens, firms, and other entities. The current amount of interest paid on this debt per year exceeds the amount of money the federal government spends on any one program or department. So the country is spending more on debt interest than it does on the entire military, for example.
Issues with Excessive Debt
Though there are reasons a country often needs to accrue debt, there are numerous downsides to owing the amount of debt that the U.S. has accrued. In light of the above debt, many experts are pessimistic about the state of the financial sector and the economy at large. This idea is touched on in the recent informational video put out by U.S. Money Reserve. The train of thought is that the extra burden repaying such debt puts on the country’s government and economy can serve to slow economic growth and even cause instability in the country’s financial system.
One key indicator that economists watch when discussing debt is the ratio of debt to GDP. As noted above, with the total debt owed by the U.S. exceeding the GDP of the country, many economists worry that the government will struggle to repay debts. This type of uncertainty can lead buyers to be more cautious, which can start a chain reaction that devalues commodities and assets across the financial spectrum. As we saw in the previous downturn (2007–2009), a stagnation or drop in the financial sector can have a domino effect throughout the country at large.
The federal government will issue more than $1.3 trillion in debt in 2018, according to a new estimate released by the Treasury Department on Monday, the highest total debt issuance since the depths of the Great Recession.#TuesdayThoughtshttps://t.co/K7UCej3XyZ pic.twitter.com/Fi0IHmieLL
— U.S. Money Reserve (@USMoneyReserve) October 30, 2018
Contributors to Debt
Debt increases when the federal government carries a deficit to fund its programs or tax cuts. Quite simply, as new government spending gets introduced via legislation or other federal programs, the money to pay for those efforts must come from somewhere. Money to pay for such initiatives is generated through taxes, but often taxes alone cannot cover the costs of all of the government’s expenditures. This is especially the case when government spending becomes excessive or tax cuts have been put in place. In these cases, the government must seek alternative methods of funding the actions it undertakes.
This funding often comes in the form of U.S. Treasury bills, notes, and bonds. Roughly two thirds of the total U.S. debt is held in this manner, owed to a combination of foreign governments, private citizens, companies, and other organizations. The remaining debt is intergovernmental. This debt comes about when the government borrows from its own programs that run at a surplus to pay for programs that run at a deficit.
A notable example of this type of debt accrual is the Social Security system. That system has been receiving more funds than it has paid out for many years since the size of the generation contributing to the program has exceeded the size of the generation receiving benefits. So the federal government has been borrowing the excess funds to pay for other programs. However, as baby boomers age into being Social Security recipients (rather than contributors), the money they paid into the system is fast coming due them. This has led many to speculate that a Social Security crisis may be upcoming as the federal government struggles to repay the money it has borrowed from the program.
Assets to Hold
In light of the possibility of an upcoming downturn, many buyers are seeking advice and information about what they can do to protect the market value of their assets. This is an especially relevant concept for those who have their money tied up in stocks, mutual funds, or other financial assets that depend on the health and growth of the economy to provide value. In response to these concerns, U.S. Money Reserve often recommends that buyers transition some amount of personal wealth into precious metals.
To illustrate why this idea can be appealing for many, it’s helpful to focus on an example case. To take gold as an example, the precious metal has increased by over 350 percent since the year 2000. This is one of the reasons it has traditionally been seen as a store of wealth: It could perform well when compared to other types of assets. The fact that precious metals have additional uses—in the electrical industry, for instance—also helps many feel that purchasing such an asset can help them retain their net worth even in dire economic times.
About U.S. Money Reserve
U.S. Money Reserve is a distributor of precious metals and U.S. government–issued coins. With an enduring reputation for high-quality service and an ability to help educate their customers on wealth protection, the company has more and more customers turning to them when faced with difficult financial and economic questions. One of the reasons the company has excelled in this area is that it is the only gold company to have a former director of the U.S. Mint as its president. President Philip N. Diehl has made a career for himself at the nexus of public service and private interest. His specialization has allowed the company to provide extra value to customers in the form of added insight on what to do in the face of a number of government policies. For this work and more, the company has earned a coveted AAA rating from the Business Consumer Alliance.
With the national debt becoming a topic of increasingly frequent conversation among professionals, experts, and the general public, it is clear that this issue will contribute greatly to the country’s future economic health. Many experts fear that the large size of the debt, coupled with the interest that must be paid in order to satisfy its obligations, will provide an impediment not only to economic growth, but also to the individual well-being of many citizens. The recent video by U.S. Money Reserve is an informative take on not only the issues we face, but also the steps that may be taken in order to help protect against a possible downturn.