The US national debt recently reached $27 trillion and is expected to pass $30 trillion before long. Explore the impact of the $30 trillion national debt on your savings and financial goals.
Why Is the National Debt Increasing?
The national debt started rising dramatically after the 2008/2009 financial crisis. At the start of 2009, the debt was at $10.6 trillion. By 2016, the total debt had reached close to $20 trillion.
Before the lockdowns of 2020, the US national debt stood at about $22 trillion. The jump from $22 to $27 trillion is mostly due to the stimulus packages passed by the government.
Stimulus spending in 2020 reached $2.6 trillion. Another $900 billion was spent on tax relief. The last stimulus package cost over $2 trillion.
Biden is now proposing another round of checks to every American. The next stimulus package may include $1,400 checks with a total cost of close to $2 trillion. The stimulus package and additional government spending will allow the national debt to easily exceed $30 trillion.
The National Debt Will Surpass the Country’s GDP
By the end of 2021, many experts predict that the national debt will match or exceed the total gross domestic product (GDP) of the United States. By 2023, the debt-to-GDP ratio may reach 107%.
A high debt-to-GDP ratio makes it difficult for the United States to pay its debts. Traditionally, the government issues treasuries to cover some of the debt. The increasing national debt will likely force the government to increase federal interest rates to increase its returns and ability to decrease its deficit.
As the federal interest rates increase, bank rates increase. Higher interest rates for mortgages, personal loans, and business loans tend to limit economic growth. People spend less and entrepreneurs launch fewer businesses.
How Does the National Debt Impact Your Retirement?
The increased national debt can lead to a variety of economic and social problems for the country. Along with decreased economic activity, a high national debt results in lower prices for bonds. US treasuries may provide minimal returns or even losses.
As people get older, investment experts recommend moving more of their portfolios from stocks to fixed-income investments, such as US treasuries. The typical 60-year-old may place up to 60% of their portfolio in fixed income assets.
If your portfolio is heavily weighted toward fixed income, now may be the time to consider alternative investments, such as a gold IRA. Precious metals often provide a more secure investment during economic troubles, including the expanding national debt.