Maybe I’m just a little dense, but I don’t get how “we” can continue to ignore the federal debt. As of this writing it is pushing $22 trillion and showing no signs of slowing. Can “we” ignore it because the number is just so overwhelming? “We” can’t comprehend what $22 trillion looks like. “We” can’t see any solutions, so what can “we” do?
There are some out there that believe the federal debt isn’t really a problem because the government can simply print more money to pay if off. That would certainly work, but at what cost? Without a similar increase in the output of goods and services, printing more money brings on inflation, possibly hyperinflation. If simply printing more money was good, then why did we ever go into debt in the first place? And, if it works for the U.S., why don’t all the countries simply print more money instead of going into debt? The answer to that is because that would leave the world with a lot of worthless currencies.
The hard fact is, the federal debt is a drag on economic growth and the bigger it gets, the bigger the drag. Let me illustrate. You have $1 to invest and your choice is to buy a US Treasury bond or a CD in your local bank. The $1 you give to the US Treasury is going to most likely be used for non-productive purposes, such as paying the interest due on the national debt or simply given to someone else through entitlement programs like Social Security, welfare, Medicare, etc. The $1 you invest at your local bank, after a small amount is set aside for reserves, is going to be lent out. The borrower might be a business looking to expand operations and add jobs. It might go to a mortgage to build a home, which requires builders and laborers. It could be used to purchase a car, which must be built by auto workers. Dollars that invest in US Treasury bonds are dollars taken out of productive use. As the federal debt continues to go up, more dollars are used to finance that debt and less dollars are available for productive purposes. That will eventually lead to slowing economic growth, stagnant wages, and a lower standard of living.
Isn’t that the way it is with individual debt? The more debt you have, the less discretionary income you have to spend on things that improve your life. Your standard of living stagnates and maybe even goes down.
The ugly truth of why “we” ignore the national debt is because “we” don’t want to make hard choices and would rather punt the ball downfield a few years and let our kids and grandkids do the heavy lifting. The hard decisions are capping entitlement spending. “We” must learn to say no to things we can’t afford at the federal level. Tax cuts, without offsetting reductions in spending, must become a thing of the past. A new tax system where everyone pays their fair share is a necessity. “We” need a whole new mindset that the government is not the solution to all our problems, unless “we” are willing to give our whole paycheck to the government.
These are the opinions of Mike Berry and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
Copyright ©2019 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
