| From 1948 to 1982, the national debt stayed relatively stable, remaining in the $3 trillion range (adjusted for inflation). But over the next 40 years, it exploded by more than 11-fold. It currently sits at over $35 trillion. Why should we care? Now that we're no longer in a zero interest rate environment, annual interest payments on the national debt have ballooned to $908 billion, which is just about equal to our annual spending on defense alone. It is estimated that our annual interest payments will be a staggering $1.7 trillion within 10 years. That's money that won't be available for border protection, energy initiatives, veterans affairs, and a wide range of other necessary services. The worse the situation becomes, the more expensive it gets. A person with bad credit has to pay higher interest rates on their credit cards, mortgages, and car loans. The same goes for countries. Argentina, a notoriously high-risk borrower, pays 40% interest to borrow money for one year. As the U.S.'s debt situation worsens, lenders will demand higher interest rates in exchange for the elevated risk. That enlarges interest payments, which in turn increases the credit risk even further... It can turn into a vicious cycle. Eventually, if the cycle continues unchecked, the whole thing will come crashing down like a house of cards. Will it happen in the next year? Probably not. In the next decade? Possibly. In our lifetime or our children's lifetimes? Probably. What would cause that crisis? It'd likely be some kind of black swan event like the COVID pandemic. The difference is during the pandemic, the U.S. was able to print dollars at low interest rates in order to keep some people afloat (and allow others to avoid returning to work). The next time we have some unusual event, it may not be as easy, especially with the world trying to move away from the dollar as the reserve currency. Here are a few steps to take to protect yourself: - Own metals. I'm no gold bug, but when the spit hits the fan, people turn to gold as a store of value. Precious metals like gold and silver are an important part of a well-balanced portfolio.
- Own rental real estate. No matter what happens, people need a place to live - and there's nothing like the passive income and tax breaks that rental real estate provides.
- Own international assets. You'll want exposure to stocks, bonds, and real estate from other countries that won't trade in tandem with the U.S.
It's always a good idea to have cash available too - to be able to pay for things, of course, but also to be able to scoop up assets that are being liquidated in a fire sale. There are a lot of differences between Donald Trump and Kamala Harris. But when you're deciding who to vote for in November, keep in mind that their approach to the debt unfortunately isn't one of them. Good investing, Marc | 
No comments:
Post a Comment