The U.S. National Debt

The U.S. government currently owes $40 trillion in debt, largely due to past promises.

Social Security, Medicare, Medicaid, and Military Spending are all very expensive.

The debt is growing fast. About 5-10 billion per day.

On top of the existing debt today, future commitments may exceed $100 trillion by some estimates.

These numbers raise concerns about the broader impact on the economy, the dollar, and investment outlooks.

The Scale of U.S. National Debt

The scale can be hard to grasp. To put it in perspective:

• A million seconds is about 12 days.
• A billion seconds is about 32 years.
• A trillion seconds is about 32,000 years.

With $40 trillion in federal debt, that’s equivalent to over 1 million years when measured in seconds.

Imagine a household earning $75,000 a year but carrying over $500,000 in debt. Clearly not sustainable.

But on top of that, imagine that household adds a lot more to their debt every year. And a larger portion of their income has to go to interest year after year. This example mirrors the U.S. government’s current debt situation.

Like households, governments must eventually face the consequences of debt. Some of those consequences can go unnoticed for a while though.

But unlike households, the government has the ability to spend beyond its means for decades without really ever having to ever pay off the entire balance. They just need to be able to service the debt (Pay interest and borrow more).

The Problems of Excessive Debt

In an ideal economy, our resources are all being maximized and optimized. When a large amount of those resources have to go towards paying for past expenses, this leaves less room for economic growth for the future.

While some debt can be useful for necessary projects and social spending, excessive debt leads to long-term challenges.

We as taxpayers pay our fair share towards this debt each year through our regular taxes. But the debt burden continues to grow, so we never really bring that number down.

Rising interest rates over the past few years have now increased the cost of servicing the debt. About 18% of federal tax revenue currently goes toward interest payments alone, diverting resources away from other necessary projects and future investments. This is similar to a household that spends more of its income on credit card interest, leaving less for essentials like housing and food.

No wonder the world feels so divisive nowadays. Less and less of our scarce resources can go towards today’s needs and future needs because we’re too busy paying for bills from the past.

The end result can be a ‘2 speed economy’, fewer high quality jobs, infrastructure in disrepair, less money for schools, hospitals, and reduced overall real wealth.

Debt Solutions

While the problem is serious, there are several potential solutions.

1. Austerity and Fiscal Responsibility: This involves cutting spending and paying down debt over time. While effective in theory, it is politically challenging as it requires reducing spending on popular programs. This is one of the most sustainable and healthy long-term solutions, but probably the least likely to be explored.
2. Raising Taxes: Increasing taxes to cover the debt is another option, but it is unpopular and could stifle economic growth. Higher taxes could lead to reduced corporate investment, lower consumer spending, and fewer jobs, making the problem worse in the long run. Very few people like the idea of paying more in taxes, so this option is also not so politically feasible. 
3. Debt Restructure or Default: In extreme cases, the government could default or renegotiate its debt. This would damage the U.S.’s creditworthiness and could make borrowing in the future more difficult & expensive. Default is a last-resort option due to its severe consequences.
4. Economic Growth: A more optimistic solution is to “grow out of the debt.” Through innovations in technology and productivity, the economy can expand, increasing tax revenue without raising tax rates. Growth can help make debt more manageable over time. This is what the optimists are hoping for.
5. Inflating the Currency: Inflation reduces the value of currency, making debt easier to repay. While inflation can help manage debt, it also erodes purchasing power and can lead to higher living costs for individuals. Sustained inflation might relieve the debt burden, but it comes with its own economic challenges.

What does this all mean for individuals

This is a complex issue with no easy solution. Addressing the debt will require difficult decisions about spending, taxation, and resource allocation in the years ahead.

It will likely become a topic of growing concern as the math becomes impossible to ignore.

The ripple effects can extend to individuals and households as well because the debt levels impact the economy, jobs, the markets, and even the dollar itself.

One more huge reason to prioritize our own individual financial health.

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Paul Saunder, Financial Advisor

I’m a financial advisor at Riverbend Wealth Management and author of Force Field Finance. I help people make confident money decisions to live the lives they want. I share insights through writing, speaking, and client conversations, and enjoy the outdoors, staying active, and time with family and friends.

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