The Debt Outlook Just Took Another Turn
The average American, the average retail investor, doesn’t understand the federal deficit and debt load.
Sure, they understand what those are conceptually, but they really don’t understand how those are a problem or the magnitude of the problem.
And who can blame them? Most major media rarely touch on federal deficit spending or on the federal debt, so why would the average person keep those things in mind?
Besides, even when the press does reference them, it uses numbers like $1.9 trillion, and 1.9 of anything doesn’t sound too bad, does it?
Besides, what is a trillion anyways?
So, it’s underreported, and the jargon used doesn’t register in most people’s minds (That really is the problem with using jargon of any kind).
So…
Let’s clarify what’s really going on
First, to give perspective, consider how thick a single dollar bill is: 0.0043 inches. So, 100 one dollar bills are 0.43 inches thick, and so forth. You get the idea.
Going back to the 1.9 trillion number that I mentioned, 1.9 trillion one dollar bills stacked on top of each other (not end to end but stacked on top of each other) would reach over half way to the moon from earth. I don’t want to simply say that it’s a big number. But it really is an extraordinarily big number.
Personally I find a stack of dollars reaching halfway to the moon to be hard to imagine... so here's a more relatable image I found online:
And that’s just one trillion. Just one of the numbers (and not even the biggest) that we need to look at today.
According to Phil Swagel, director of the Congressional Budget Office, the federal government is projected to spend $1.9 trillion more in 2026 than it brings in in taxes (a one-year budget deficit of $1.9 trillion). That’s 5.8% of GDP, or to put it another way, every 18th dollar that the federal government spends is borrowed money.
Neither you nor I would be able to keep up our spending habits for very long if we spent like that, but the government apparently thinks that it is the exception to that rule.
In fact, Swagel estimates that in ten years, the federal debt held by the public will increase to 120% of GDP. It’s currently at 99% of GDP, and at 120% of GDP, that’s like saying that every dollar spent in the U.S. economy would have to be put towards the debt for nearly 14 and a half months (with no government deficit spending during that time) to pay off the federal debt.
But the debt keeps increasing because the government keeps spending.
Of course, some people’s response to that is to simply shrug and go on with their lives as if it’s no big deal. Those people who seem indifferent are often average everyday people, not the people who are trusting in the pipe dream of “modern monetary theory” or MMT. The "debt doesn't matter" crowd. These folks just don’t see how that spending connects to their lives. Unfortunately, they're totally wrong...
How government overspending impacts every one of us
For those who know where to look, it’s no secret what government overspending does to us. Even the House Budget Committee acknowledges the problem (yes, the committee where much of the overspending starts says there is a problem with it).
The effects that they list include both inflation and higher interest rates, and both of those should make people pay attention.
After all, we all remember how inflation went to 9% just a few years ago, and how prices never declined even after the rate of inflation did (remember, inflation is measured in the rate of price change, not a temporary price adjustment). That's another way of saying lost purchasing power never comes back.
This means that medical costs increase. It means that prices on food and utilities go up. It means that everyone’s dollars just don't stretch as far as they used to.
And that includes the government’s dollars spent on Medicare, Medicaid, Social Security and other programs. The very programs that many Americans, especially retirees, are dependent on day to day.
If those dollars don’t go as far, many retirees have fewer options for living a comfortable retirement.
And with inflation, the government has to put more and more resources towards paying out towards the programs that they are legally obligated to continue.
That means that the federal government has less options for where it can put dollars for any reason (good or bad).
Remember, though, it’s not just inflation. It’s also higher interest rates, and higher interest rates mean that the government has to spend even more just to service the debt.
It’s been said that compound interest is the "eighth wonder of the world," and if you’re on the profiting side.
If you’re on the paying side of compound interest, though, it’s not a miracle. Higher interest rates cause debt to compound faster, leaving the government even fewer options. More dollars have to be paid to refinance debts from money they’ve already spent!
Higher interest rates lead to higher debt servicing costs, which means fewer dollars to put towards making sure that retirees have enough income to not be impoverished.
Higher debt servicing costs means that the federal government has fewer options for what they even can do.
Knowing all of this, someone might ask:
So, why don’t they just fix it?
It’s a logical question. After all, the House Budget Committee knows about these problems.
The difficulty is this: It’s incredibly unpopular to stop giving money to people that you’ve been giving to them. After all, politicians don't win elections by promising their constituents they'll raise their taxes and slash their benefits.
That’s true whether you’re talking about Social Security (that’s a political grenade that no one wants to touch) or whether you’re talking about spending that nearly everyone acknowledges is wasteful.
And I’m not picking on any political party here. This is just the reality of human nature and our political system. People like to receive money that they think of as "free" (after all, we do pay taxes). That means that they’ll vote against anyone who tries to take away their “free money.”
Cutting spending is politically unpopular, and it's certainly not the path to election (let alone reelection).
So, what can politicians realistically do if they want to stay in office (even if they hope to do good things)? They almost have to vote for continued overspending.
So, what does that mean for you and your family?
Higher prices thanks to currency devaluation. Higher costs on debt (mortages, credit cards and car loans). Generally speaking, a lower standard of living. That's why I get so worked up about government debt.
Now, I’m not going to tell you that the economy is going to collapse or anything like that.
I am saying, though, that the longer this overspending continues, the less options that the government will have for where they can put money and, also, the more difficult that it will be for the average person to be able to afford the basics of a comfortable life. This is a slow motion crisis, exactly the kind that most people have trouble dealing with. Show us a forest fire and we'll know exactly what to do! Show us a forest slowly dying because of some new tree disease and we don't know how to fix it.
Which is why I would suggest that we should choose not to be average people.
I’m not being flippant when I say that.
What I mean is that average people don’t plan ahead for their retirement, and average people don’t take into consideration many of the obvious (if you’re looking) issues that will almost certainly come up during their retirement years.
You know, issues like inflation and the government having less ability to help people (because their hands are tied servicing the debt).
So, the non-average person both plans ahead to save enough to live comfortably in retirement regardless of what the government can do, and they also take steps to put into place a hedge against inflation.
Both of these reasons are why many people are choosing to diversify into precious metals, which historically are an effective hedge against inflation and retain their purchasing power across economic conditions to maintain real savings in their retirement years.
If you’d like information about how you can diversify into precious metals in a tax-advantaged way, you can get our free 2026 Precious Metals IRA Information Kit.
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