One of the major issues facing the United States country is the national debt. It’s currently at nearly $20 trillion and growing every day. And while politicians have railed against the debt for decades, it continues to increase. You may think, this isn’t my debt, it’s the government’s debt and it doesn’t affect me. But is that true?
How the National Debt Affects You
The primary effect of an increasing national debt is an increase in future taxes, and it takes effect in a number of different ways.
Governments have three ways of raising money: taxes, borrowing, and inflation. Taxes can be politically painful, so the government resorts very often to borrowing and inflation. But money that is borrowed today has to be paid back in the future. And again, there are three ways of paying back that money: taxes, borrowing, and inflation. Unless the government wants to borrow to pay 100% of its budget, or print enough money to send the country into hyperinflation, taxes will have to be raised in order to help pay for government expenses.
Another effect of the increasing national debt is an increase in its interest rates. As the amount of the national debt goes up, the government will find it more and more difficult to roll over the debt that is coming due at the current interest rate. In order to entice people to continue lending money to the government, the government has to offer higher interest rates to lenders to get them to loan money. That leads to an increase in interest expense within the federal budget.
The federal government currently spends over $400 billion a year just on interest on the current national debt. As both the size of the debt increases and interest rates increase, that sum will increase by hundreds of billions of dollars. And who will get billed for that? The US taxpayer.
Remember, the reason people buy Treasury debt is that is backed with the “full faith and credit” of the United States government, meaning that investors believe that the US government will always be able to squeeze enough money out of taxpayers to repay US government debt.
The Looming Collapse of the Dollar
Recession is bad enough, but there’s an even direr consequence of our national debt. The problem is not just that the US is heavily in debt, but that the US dollar is weak. Since the demise of the gold standard, the dollar’s purchasing power has dropped precipitously.
The only thing backing the US dollar now is confidence: confidence that the dollar won’t be weakened too much, too fast. As long as that confidence remains, things might be okay. But it’s hard to remain confident with a government that doubles its national debt every decade and a Federal Reserve System that is bent on continuously eroding the dollar’s purchasing power.
Once that confidence is shaken, the dollar will collapse. That will do tremendous harm to the US economy, as well as to the economies of trading partners and international creditor nations such as China and Japan.
The only way to stave off a currency collapse is to return to a sound monetary system based on gold. Printing paper money will lead to poverty, not wealth. Only gold can provide the stability necessary to support a strong and healthy economy.
Until that happens, I also suggest investing in gold, to help you protect your portfolio against an imminent economic crash. When the dollar crashes and stock markets plummet, your gold investment will provide you with a cushion to protect your nest egg and keep you from losing everything. By following this advice, it will be easier to weather the storm that our increasing national debt is warning us about.