National Debt Breaks $36 Trillion
The U.S. breaking debt records is sounding like a broken record. Yet, the national debt has again shattered another record. It has soared past $36 trillion. This relentless trend of record-breaking debt, which hit $35 trillion in July, $34 trillion in January, and $33 trillion in September 2023, shows no signs of slowing. By 2027, the debt/GDP ratio will eclipse the post-World War II record set in 1946. This year also marked the third-largest budget deficit in U.S. history. As these broken records reflect a broken economy, gold offers a reliable safeguard to protect your portfolio from its far-reaching impact.1
About the Debt
The U.S. debt is owed to a variety of entities, including foreign countries, companies, nonprofits, investment funds, and individual investors.
Despite the mounting challenges, U.S. debt remains the bedrock of the global financial system. It underpins international trade and serves as the main reserve currency. However, if the U.S. were ever to default, the consequences would be catastrophic. Think a global financial collapse, depression, and economic chaos.
Drivers of Debt Growth
Massive government spending is far outstripping revenue. Social Security payments to an aging population are also accelerating debt growth. Notably, Social Security itself is one of the largest buyers of Treasury securities, holding nearly $3 trillion in national debt. Rising interest rates are also rapidly swelling the debt. Net interest payments rose by $240 billion this past year. Debt interest payments now exceed spending on Medicare and national defense.2
How the U.S. Spends
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Consequences of Massive Debt
The national debt, currently 120% of GDP, creates significant risks:
Debt Doom Spiral: Rising interest payments may force cuts to popular programs or require more borrowing. Resulting in a downward debt spiral that ends in bankruptcy.
Higher Interest Rates: Investors may lose faith in U.S. creditworthiness. As they demand higher returns to buy U.S. debt, costs for business loans, mortgages, and credit cards can spike.
Weaker Dollar and Inflation: Printing money to manage debt could devalue the dollar. Prices would skyrocket and make the last few years of inflation seem tame.
Loss of Foreign Investment: Unsure of returns, international investors may divert funds elsewhere. Choking off vital support for the U.S. economy.
Why Not Mint a $36 Trillion Coin?
While this idea is often floated, it’s not a viable solution. Minting such a coin would tank U.S. creditworthiness. It would cause interest rates to skyrocket and trigger a recession or depression. Inflation and unemployment would soar as the dollar plummeted. Erasing value from retirement accounts and destabilizing the economy.
Fixing the Crisis
Realistically, the goal isn’t even to pay off the debt entirely anymore. Now, it needs to be managed so it doesn’t drag down the economy.
The Penn Wharton Budget Model came up with two proposals. Both could reduce deficits without damaging the economy. The first involves broad spending cuts. The other involves ending tax cuts and raising new taxes.
Unfortunately, Congress is driven by politics, not pragmatism. So, the likelihood of either proposal passing is slim. President-elect Trump has rare opportunity though. With a unified government, he could make changes that could slow, if not totally fix, the national debt crisis. With tax cuts expiring and budget caps are looming, he faces a tough fight.
The Trump presidency is already focused on government austerity. He has proposed the new Department of Government Efficiency (DOGE). Elon Musk and Vivek Ramaswamy are looking to cut $2 trillion out of the budget. Musk has admitted that cuts will result in “economic pain.” But maintains they are necessary for the long-term health of the nation.
Debt as Security Risk
The Bipartisan Policy Center warns that the debt now poses clear national security risks:
“A large and growing national debt poses long-term economic and security risks to the United States. Those risks are becoming more evident. In fiscal year (FY) 2024, the U.S. spent $882 billion on interest payments (to service its borrowing). In comparison, the total national defense discretionary spending for FY2024 was $874 billion. If left unchecked, high debt service costs will eventually crowd out other priorities, potentially undermining the ability to protect our nation and support our allies.”4
Conclusion
International investors have been reducing their holdings of Treasury bonds since 2021, reflecting declining faith in U.S. creditworthiness. Without government intervention, another dire record will likely be broken soon.
As the crisis looms, one strategy for individuals is to safeguard their wealth with assets that maintain value independent of the currency system. Physical precious metals like gold and silver are such safe havens. Gold has risen more than 30% since 2020. Held in a Gold IRA, these metals provide long-term insurance against the economic fallout of a debt crisis. To learn more about protecting your financial future, call American Hartford Gold at 800-462-0071 today.
