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Why you should care about the government’s deficit attention disorder

Originally posted: May 2, 2018 Updated on: May 1, 2018 by David Lewis

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.

Filed Under: Financial Planning, Retirement Planning, Saving Money Tagged With: deficit spending, government debt, government debt bubble, government deficit, pension crisis, retirement planning, social security crisis

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David Lewis
Life Insurance Specialist | Registered Financial Consultant | Author

Reader Comments

Over the years, I’ve somehow managed to attract the attention of professionals, business owners, as well as insurance agents and financial planners.

Some of these folks have become regular readers and some… some have become loyal clients and even friends.

Here is a small sample of the comments I’ve received from some of my readers and clients:

*****

“I found your comments about the ‘be…own bank’ stuff straight to the point and (maybe) helpful.” — Joe

 

***

“I have known David for many years now and can say that he is a very honest and knowledgeable person and a great financial advisor. His insights are always backed up by tedious research and he has a real passion for helping people with their most important financial decisions. My gut tells me that after working with David you will likely feel like every stone has been uncovered and you will be confident that your financial well being is in good hands and you will be on your way to feeling financially secure. I do not regularly endorse other advisors in my field but I feel comfortable giving a strong thumbs up for David.”— Antonio Filippone, Registered Financial Consultant

***

“Keep up the good work..I like reading your emails..” — Kelechi

***

“Just read through your term v whole life blog from 2015, found it very well done and emailed it around the office here (I’m a CFP with [company name removed] ).” — Doug, CFP

***

“I read your very thorough discussion of the IBC on on nuwireinvestor. I wanted to thank you for providing such relevant content on the subject.

I found your piece very well done and I found your explanations very analytical. Thank you for that service to readers.

…Content creators like you inspire me and I’m so thankful that we live in an age where so much knowledge is available to us.” — Wayne, Dentist

***

“Watched your video on time value of money and whole life compared to other investments. Very interesting.” — Alex, property and casualty agent

***

“You are a breath of fresh air. Thanks.” — Bob

***

“After speaking with several brokers, I decided to work with you because you were the most informed across numerous life insurance companies and the nuances of their policies. You helped me select a policy with twice the internal rate of return than the first quote I had received from another broker. Life insurance is now a significant part of my estate, and I look forward to working with you for many years to come.” — Keith, Public Relations

***

“Life insurance as it exists today is undoubtedly a pale imitation of what it could be in a free market, but in terms of safety (and other utility), it’s the best option I’ve discovered so far.

There’s still a lot I need to understand about how life insurance works as a long-term savings vehicle, but for now I’m at least satisfied that some of my money is a little safer from theft and wildly arbitrary taxation.

It’s too early to tell, but I’m cautiously optimistic. I’m currently putting about 20% of my savings into life insurance, with the rest split between precious metals, investments, and traditional retirement accounts.

I wish life insurance could offer a better rate of return, but with an out-of-control pirate state sailing the financial seas, pillaging with impunity, I’m happy to have some measure of safety, even if it means giving up a lot of potential profit.”

Tim, Self-Employed

***

“At first, I was a bit shocked at your extremely informal writing style, but it has grown on me. I actually look forward to your emails and the intriguing stories. The style breaks up the monotony of the other emails. Your emails have gotten my butt in gear to create my long and short-term financial plans.

Your writing and book recommendations have been an immense aid in teaching myself better finance principles and proved to me that it is very important to save money for all of those opportunities and curve balls that life throws at you.

I am now the happy owner of two life insurance policies, and I am armed with the knowledge to use them effectively. Thanks!” — Tom, Nuclear Engineer

***

“Once the concept of whole life started to click, I was very sure this was the direction I wanted to go. You showed me how to get there and tailored my policy to meet my particular needs and comfort level- well, we pushed that a bit, but I’m glad we did.

My only question is, where were you 30 years ago to take me down this road?” — Shari, Grant writer

***

“Your meticulous attention to detail assures me that I know exactly what to expect. You’ve given me a different perspective about making my money work for me. I actually feel I have control.” — Marilyn, Legal Assistant

*****

 

Not all comments are positive, though…

Occasionally, I receive hate mail (or random comments on social media) from folks who are not clients (and never will be). 

Here’s what “the other side” has to say about me (in case you were wondering):

*****

“Whole life is what scam-based insurance people like David Lewis use to make a lot of money in commission at your expense. Get term life insurance. Never mix investing and insurance.” — L.C.G., self-proclaimed financial expert and forum moderator; [location withheld]

***

“You ‘talk people into’ buying whole life insurance policies, which I personally think are not just a bad investment, but verging on a scam.” — R.F., Real estate investor and developer; [location withheld]

***

“According to David, most advisors are ideologues, spewing the failed practices of the companies who control the financial service industry. Only his way of doing things puts the client first.” — Joe, Financial Advisor [location withheld]

***

“David, I understand that you’re using Ayn Rand’s premise…

Well, you’re entitled to your viewpoint. But, I consider a flat dismissal of the codes that professionals have, for centuries, developed, refined, and attempted to live by to be absurd — and, frankly, rather silly.” — J.O., Financial Planner [location withheld]

***

“I couldn’t disagree more with your view of the financial services industry.” — C.G., Certified Financial Planner [location withheld]

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