INFLATION WARNING: The 2020 DEBT Bubble Explained |
Lets discuss the ever growing national debt, whether or not this is a concern, if it’s a bubble, and how this affects your money and investing for the near future...
The United States is, at its core…kind of like a business. It has what’s called a GDP, which stands for Gross Domestic Product - and that’s the entire market value of all the goods and services produced within the United States..the purpose of this is to measure the economic output of our country, see if we’re GROWING as a society, and when that number goes up - it tells us that incomes are increasing, and people are spending more. But this goes for almost all the countries.
Now, this is important because - ALONGSIDE that GDP - includes all of that revenue that the country makes to keep itself running. After all, roads need to be built, the military needs to continue running, police and firefighters need to get paid, like buttons need to be smashed…and so on. Now, a lot of those types of services are all paid for through our tax dollars - and, just with any business, there are going to be times where there isn’t enough tax revenue to pay for all the services that we get.
Typically, this is done through issuing bonds and treasury bills - which is just a fancy way of saying: The government will pay people interest if they loan it money. And that loan is guaranteed by the United States, which - lets be real - it’s pretty much guaranteed to pay it back, so people see this as a really, REALLY safe investment.
So, here are a few concerns that frequently get brought up:
One: If interest rates begin to rise, the cost of holding on to that debt become more expensive. Right now, since interest rates are next to nothing…the United States holding on to $25 trillion worth of debt isn’t much of a concern. If anything, it’s BETTER to hold more debt at a time where interest rates are low…than it is to hold LESS debt when interest rates are high - just because, with low rates, that debt is cheaper to keep.
BUT…if interest rates were to be at 4 %…that debt would begin draining money from other resources, and when the United States needs to figure out how to raise more cash - the worry is that they’ll do it through higher taxation.
Two: The other concern is we just carry on as usual…and then leave it up to future generations to worry about. Maybe THEY’LL be the ones that are taxed higher, maybe THEY’LL be the ones with less money spent on public services…or, we can leave it to them to keep kicking the can down a little further until our Grandkids do something about it.
In terms of whether or not we should be worried about our debt…the answer is, PROBABLY NOT.
When we look at our debt in relation to how much money we make…we’re actually a LOT lower than quite a few other countries. You can see here that, sure, we might OWE the most amount of money…but, we also MAKE quite a lot of money, as well:https://en.wikipedia.org/wi...
Secondly, I think it’s assumed that the plan of action here is to keep interest rates low, and then let inflation do its thing - as long as our economy continues to grow, and innovate…that debt will just sit there, whittling away, assuming we don’t keep adding to it.
And really…because of that there’s no REASON to pay off the debt early. Why would they?
HOWEVER…where I see the biggest obstacle, is IF people stop investing in the United States, and we stop growing as fast as we have been…then the United States will be forced to pay higher interest in their debts to entice more people to lend money, and THAT - in turn - would almost certainly mean higher taxes in the future.
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