• The Congressional Budget Office is forecasting federal deficits to be $2.1 trillion higher over the next decade than initially predicted
• High government debt can lead to soaring inflation and dollar devaluation
• Precious metals, especially in a Gold IRA, can protect the value of your retirement savings from the consequences of America’s runaway debt

Out of Control Debt

In just six months, from January to July 2024, America’s national debt skyrocketed from $33.99 trillion to $34.86 trillion. That’s an astounding increase of $876 billion. With the budget deficit projected to hit $2 trillion, $300 billion more than last year, alarm bells are ringing across the financial and political spectrum.¹

The Congressional Budget Office (CBO) has recently updated its projections. They are forecasting federal deficits to be $2.1 trillion higher over the next decade than initially predicted. The increase is due to new government spending bills and changes in data analysis. ²

The Peter G. Peterson Foundation is a nonpartisan organization focused on America’s fiscal challenges. They warn, “The CBO’s updated projections emphasize the nation’s unsustainable fiscal outlook, as the projections show deficits continuing to rise significantly over the upcoming decade.”³

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These deficit levels are historically associated with times of war or recession-driven stimulus spending. U.S. net debt is nearing 100% of GDP. Large debts like these were once manageable due to near-zero interest rates. But recent aggressive interest rate hikes have turned these debts into a significant burden.

Dangers of Debt

Mike Pompeo is a former Secretary of State and ex-CIA director. He views this debt as a national security threat. He cautions that record-high debt could lead to dollar deterioration. This could potentially allow U.S. rivals to gain influence over the global economy. The BRICS+ economies are gaining geopolitical influence and attempting to establish a rival trading and monetary system.

Pompeo states, “Persistent high debt, interest rates, and inflation can combine to weaken the value of the U.S. dollar in the long run – a disastrous outcome that would only benefit America’s adversaries in Beijing, Moscow, and Tehran as they seek to recenter the global economy away from the United States.”⁵

The consequences of ignoring this mounting debt are dire. Higher debt servicing costs mean less funding for critical public services and reduced capacity to respond to crises. Increasing bond yields would be necessary to attract investors. This translates into higher borrowing costs, and in turn, slowing economic growth.

It also leads to a “crowding effect”. Investors choose to put their money into high interest government bonds instead of private investments. As a result, the economy stalls. In addition, high debt can also lead to dollar depreciation and inflation.

The Congressional Budget Office projects that by the mid-2030s, all federal revenues will go to mandatory spending, like Social Security, and interest on debt. This scenario would force the government to either borrow more or cut discretionary spending to finance basic functions. Defense, law enforcement, infrastructure, and education would all be endangered.

Escaping the Debt

An unlikely solution to the debt crisis is good fortune – inflation is defeated, interest rates go down, and productivity surges (maybe from AI). In essence, America can outgrow its debts.

The International Monetary Fund (IMF) has reiterated its warning that the U.S. debt “needs to be urgently addressed.” They suggest that the U.S. will need to cut spending or raise taxes by 4% of GDP to stabilize the debt by 2029.⁶

However, economists point to a more worrisome solution: sticking it to creditors by devaluing the debt with inflation. Inflation reduces the real value of government debt. Creditors are made to “pay” by receiving less valuable money. Government repayments during high inflation have less purchasing power than the original loan.

This could occur through various mechanisms. All of which are hazardous to the health of the economy: The Federal Reserve prints money to buy government debt. The Fed keeps interest rates low while increasing government spending. Or Congress allows unlimited borrowing, potentially compromising the Fed’s ability to control inflation.

Some analysts argue this process is already underway in America, though it’s too early to be certain.

Global Impact

The global implications of this debt crisis are significant. As the world’s reserve currency, a debased dollar would devalue global reserves. Capital would become more expensive worldwide, leading to global recession. Investors might seek alternatives to the dollar, potentially leading to a chaotic transition into a new world order.

Conclusion

As we face this looming crisis, the words of Mike Pompeo serve as a stark reminder. He said, “We must wake up to the threat America’s mounting national debt poses to the future of our country before it is too late.” The path forward requires difficult decisions, fiscal responsibility, and a clear-eyed view of the challenges ahead. The alternative – a weakened dollar, diminished global influence, and economic instability – is a future we can ill afford.⁷

JP Morgan doesn’t foresee meaningful improvement in the medium term. They advised “adding non-U.S. dollar–denominated assets and ‘real assets’ such as infrastructure, gold and commodities to traditional multi-asset portfolios.” ⁸ Precious metals, especially in a Gold IRA, can protect the value of your retirement savings from the consequences of America’s runaway debt. Contact us today at 800-462-0071 to learn more.

Notes:

1. https://dailyhodl.com/2024/07/07/us-debt-explodes-876000000000-in-six-months-as-ex-cia-director-says-americas-balance-sheet-is-national-security-threat/
2. https://www.pgpf.org/blog/2024/07/the-nations-fiscal-outlook-just-got-worse-heres-why
3. https://www.pgpf.org/blog/2024/07/the-nations-fiscal-outlook-just-got-worse-heres-why
4. https://www.livemint.com/economy/americas-reckless-borrowing-is-a-danger-to-its-economy-and-the-worlds-11720510033537.html
5. https://dailyhodl.com/2024/07/07/us-debt-explodes-876000000000-in-six-months-as-ex-cia-director-says-americas-balance-sheet-is-national-security-threat/
6. https://finbold.com/imf-warns-u-s-to-immediately-address-its-chronic-fiscal-deficits/
7. https://dailyhodl.com/2024/07/07/us-debt-explodes-876000000000-in-six-months-as-ex-cia-director-says-americas-balance-sheet-is-national-security-threat/
8. https://privatebank.jpmorgan.com/eur/en/insights/markets-and-investing/tmt/how-worried-should-you-be-about-government-debt