The public debt (debt plus deficit) is the difference between the amount of money the government takes in each year in taxes and investments and the amount the government spends. The US public debt is currently almost $16 trillion. If you go to usdebtclock.org, you will find the latest number. The interest alone for this debt in 2012 is over $3 trillion according to the same source. So what do these staggering numbers mean and how will it affect you?
Is a large public debt an indicator of bad economic times to come? The United States Government Accountability Office (GAO), has stated that a rising national debt, particularly when it becomes as large or larger than that of a nation’s GDP, is a big problem and a long-term one too.
The more debt a country holds, the less money it’s able to put away in savings and reinvest in the nation’s economy. This means that Social Security, Medicare and Medicaid savings accounts are going to be hit hard by the retirement of this generation. The government can no longer access these accounts to pay for other federal programs. The GAO also says that federal borrowing to pay off the deficit will inevitably lead to higher interest rates, affecting the ability of citizens to buy homes and take out loans. That could lead to a broader economic slowdown, or even another recession / depression.
It’s interesting to read about government officials that continue to state recovery, having already racked up massive debts, yet we are stagnating at best in this so called recovery.
Now some say that the government will just keep printing because the US dollar is fiat money. Well the government can do this, but there is a limit. Higher interest rates is one of these limits.
Today, many still consider their “return on investment” to be the most important part of their portfolio. Many avoid considering “wealth preservation” to be more important.
Consider this. What would life be like if your investment returns and your principle went to near zero? It’s starting to happen in Europe. Think preservation folks. There will be a time in the future where ROI will come back. Now is not that time.