$33,900,000,000,000…
The US national debt is soaring past $33 trillion — a number so big a stack of $100 bills would reach more than 24,000 miles high.
And according to the Peterson Foundation:
- $33 trillion is roughly the economic value of China, Japan, Germany, India and the United Kingdom combined…
- The potential tax bill to help cover this debt is now over $259,000 per household or $101,000 per person in America…
- If every US household paid down $1,000/month of that debt, it would take more than 21 years to pay it off…
- Right now, the total amount owed is more than 122% of the GDP (gross domestic product), which is the total value of all the goods and services produced in America each year.
In other words, America isn’t making enough money to pay for the government’s debts. But why does it matter? How does it affect our lives? And what can we do about it?
Well, for starters…
The interest payments on the national debt are now 2 BILLION dollars per day.
As the government’s debt load increases, the interest on that debt also increases.
And trying to pay down the debt and interest as they both increase may reduce capital available for main government programs like education, healthcare, infrastructure and national security.
High debt also limits the government’s fiscal flexibility.
At any given time, the government needs money to manage unexpected economic events, like natural disasters… bank failures… and geopolitical conflicts — all of which America has faced in the last couple of years.
During the COVID-19 pandemic, for example, the government borrowed trillions of dollars for disaster relief and economic stimulus checks. As the pandemic struck, the national debt was already $22.7 trillion. To supply relief, they added $8 trillion to the debt, and it kept rising from there.
And when the debt grows this high…
The government starts to lose the financial wiggle room it needs to borrow and spend without risking a fiscal crisis.
If another major crisis sweeps the nation, the government may not have the fiscal flexibility to afford another massive spending package without raising taxes, printing more money or both.
And if they do, the effects on the economy, the American taxpayer and the value of the US dollar may be… uncomfortable… to say the least.
This may also reduce America’s economic growth.
As the government borrows more, it competes with the private sector for a limited pool of savings. This tends to drive up interest rates and push private investments to the sidelines.
In turn, productivity, innovation and American competitiveness dwindle. This reduces GDP growth and, ultimately, America’s standard of living.
And it may pose a legitimate threat to the country’s financial stability and sovereignty.
As you may recall, Fitch, a US credit rating company, downgraded US credit earlier this year, several nations are already dumping their bond holdings, and the BRICS coalition — Brazil, Russia, India, China, and South Africa — is moving away from dependence on the US dollar. (Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates may join BRICS in Jan 2024.)
Should foreign creditors lose further confidence in the US government’s ability to repay debt, they may demand higher interest rates, sell more of their holdings or stop lending money to the US altogether.
If this eroding confidence plus international de-dollarization efforts continue unchecked…
…it has the potential to trigger a debt crisis where the government faces a sudden spike in borrowing costs, a sharp drop in the dollar’s value or a default on its debt obligations.
The government has already come close to defaulting twice in 2023, and some analysts say they’ll face another debt ceiling standoff with Congress in 2024 as the money well starts to run dry… again.
Is there any way to solve the problem?
Well, the solution is simple in theory, but not easy in practice. They may need to consider a combination of spending cuts, revenue increases and reforms to entitlement programs like Social Security, Medicare and Medicaid – which are main drivers of future debt accumulation.
However, this would require a herculean effort that includes bipartisan support, public support and, ultimately, foreign investor support – all of which are dwindling in the current polarized, politicized, gridlocked environment.
And we may not have the time or resources to achieve it.
Nonetheless, the longer the government waits to act, the more difficult and painful any workable solutions may become.
Because without radical changes, the debt problem may grow worse.
This means the year 2024 could be a critical juncture in the government’s financial situation as the economy faces several challenges, including:
- The end of tax cuts
- The end of the Federal Reserve’s bond-buying program
- The continued aging of the growing population and meeting their needs
- And the potential escalation of current trade and geopolitical tensions.
As the debt continues to grow on top of these challenges, the ripple effects may stress the financial future for generations to come.
Ray Dalio says, “We are near that inflection point.”
Fed Chair Jerome Powell says, “The path we’re on is unsustainable, and we’ll have to get off that path sooner rather than later…”
And we here at Gold Alliance say: Whoever controls the White House next November will have to face the reality of this unsustainable situation and correct course before America’s economy reaches the point of no return.
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