Imagine you could pay off all your debt right now by… borrowing more money.
It would feel just a little bit wrong, amiright?
But how would it make you feel to be debt-free?
What’s that?
You say you wouldn’t be debt-free?
You say you’d still be in debt because you had to go deeper in debt to pay off previous debts?
Hmmm.
You may have a point there.
Come to think of it, this is exactly what the federal government does.
It borrows money from taxpayers and issues Treasuries (bonds, which are debts) and then pays interest on that debt like any good debtor.
But the government’s only form of revenue is tax payments by… you.
Well not JUST you but… you get the idea.
Anywho, the government pays interest on its debts using “income” it collects in the form of taxes.
It’s the ultimate redistribution of wealth scheme.
But what happens when taxes go down as is the case under the Trump tax plan?
And what happens when the government increases its borrowing and deficit (and spending) at the same time?
And what happens when the largest segment of the population starts retiring and using all those promised benefits like Social Security and Medicare?
Something has to give.
This is why some smart fellers in Washington are worried.
The government’s accountant is saying that, basically, there’s not enough money to go around.
I guess Margaret Thatcher was correct.
Normally, when an economy is doing well, like ours is right now, deficit spending decreases because the government can collect more in tax because businesses are — by definition — doing well and more profits = more tax (that’s the meaning of “the more you make, the more they take”).
Historically, this has nearly always been true but it’s not true now.
Businesses are doing fairly well, yet taxes are lower for many, and the government is increasing spending and continues to increase spending.
At some point, this ends.
I’m not sure when but at some point there is a correction to clean up the bad decisions and mistakes businesses make in the normal course of doing business.
But with a debt-to-GDP ratio of ~70-75%, there’s not a lot the government can do.
Obviously if they continue spending like this, investors will demand higher interest on those Treasuries.
… just like your credit card demands a higher APR when your debt-to-income rises a bit too high. Or… your auto insurer charges a higher premium if you have shaky credit.
This is what’s happening to the federal government.
And when those rates rise (as they are doing now), there comes a point where the government can’t afford to pay interest, let alone principal, on its debt.
And that is no good for anyone relying on government to make good on its debt obligations… its bonds, its Social Security promises, its Medicare promises, its various government services.
Ok, enough depressing news.
Let’s talk about solutions.
Of which you have one: become more self-reliant and less dependent on the government for… anything.
The less dependent you are, the less you’ll feel the hurt when the hammer falls.
Want to protect yourself?
This is what I do, baby.
But, if you want me to help do it for you, you gotta hop on my… email list (what did you think I was going to say?).
OK, do it now poindexter.