Should You Be Worried About This Quiet Threat?

As the 2024 presidential race approaches peak velocity, one critical issue remains in the shadows: the looming threat of federal debt is just being ignored. Now, you might be asking why I'm talking about national debt on a channel that's dedicated to helping you make the most of your money. The national debt can affect your financial security. According to Pew Research Center, Americans are concerned about the national debt, and more so than nearly any other issue that's making front page news. We got a lot to cover. You're going to be glad that you watch this video.

Hi everyone, I'm Phil Clark. Welcome to another edition of We're Talking Money. So you should be asking, why is it anyone talking about the real impact of our ballooning debt? Most importantly, what does it mean to your financial future?

So first, what is the US national debt? Right now it's at an all-time high of about 35.7 trillion, with a T, trillion dollars. Now, to put that in perspective, it's much larger than our projected 2024 gross domestic product of about 28 trillion. So how did we get here? The answer is simple. Our federal government, they consistently spend more than it collects in taxes. The government has no money. They don't have anything without a taxpayer. So if they can't collect more, then they're going to spend in what's called a deficit.

Every 12 months, the Treasury of the United States borrows money by selling bonds. You've heard treasury bonds, treasury notes, etc., promising to pay an interest on that debt. The result is our national tab, it just keeps growing. In 2024 the federal government is $2 trillion more in expense than it's collected in taxes. Take a moment and imagine running your household like this, every 12 months running over in terms of expenses over the amount that you have in terms of income. If you walked to your banker, if you walked in his office and said, "Hey, I need to borrow some money," that banker would laugh you out of his office, and they would tell you as they laugh you out that you're bankrupt. Why, though, is our country not scolded for this kind of behavior?

So why is the debt growing so fast? Programs such as Social Security and Medicare, those happen to be the largest expenditures in our national budget. They serve a growing population of older Americans. About 4.1 million people are turning 65 every year, and that trend is expected to continue through 2027. With the aging baby boomer generation, the demand for these programs has skyrocketed, and it's probably not going to cool off anytime soon.

If this information is available to the public, then surely both political parties are aware of this outsized debt. The question is, why is it not at the top of their agenda? Answer number one, perhaps it's not fixable and they don't want to give it any attention. Number two is spending would have to stop and taxes would increase. Neither candidate wants to step into that quicksand. This is a problem that may be in mountable. It's going to get attention.

So another big ticket item, it's our military spending. Now, despite the constant political bickering in Washington, the defense budget so far remains off limits for cuts, and some people argue that that's a good thing. It is a huge territory, that of the United States, and protecting our freedoms, it comes with a very hefty price tag. Frankly, I support spending on defense over some of the more frivolous spending that seems to have no end.

That 35.7 trillion is borrowed from investors who expect to be paid interest. Did you know that in 2024 we are expected to spend just shy of $1 trillion on interest payments alone? The debt is not going down at all. That's just the interest payment. There are no plans to pay the debt off. That's more than our military budget, or our defense budget, and nearly as much as what is budgeted for Medicare payments, two of the biggest line items in our entire federal budget. The third largest line item on our national budget is our interest payment. It bothers me every day, and it should be bothering you.

Why should you care about the national debt? Some people don't even know what it is. I had a conversation with someone a few weeks ago and they were confusing it with our 12-month budget, which runs a deficit. A deficit and a debt, they are not interchangeable. The debt is one thing, and the deficit is the amount that we spend that goes above what we take in. Right now, most Americans don't feel the direct effect of this huge debt. Government spending, it fuels economic activity, but this short-term boost, it hides, puts a mask on a much larger, more significant long-term threat. Long-term could be a few years, it could be 10 years, it's hard to say.

Historically, no country has perpetually increased its debt. The highest levels of debt topped out around 250% of gross domestic product. Since 1900, 18 countries have hit a debt to GDP level of 100%. Generally that's due to the need to pay for fighting world wars or extreme economic downturns such as the Great Depression. The US Treasury today estimates that our debt to GDP ratio will reach 160% by 2040. It's already at about 125%, and if you add state debt to that, it's at around 35%. As the debt grows, so does the burden of interest payment. That is squeezing a lot of funding for essential programs that really stimulate the economy.

Here's the bad news: taxes will have to rise sharply if these costs are to be covered. But here's what higher taxes will do. They slow growth. Less money in the hands of consumers and businesses means lower corporate earnings, fewer jobs, almost a certainty we'll have a downturn in the stock market. Worse still, if inflation spikes, policy makers, they might lower interest rates to ease borrowing cost. That could worsen inflation.

So is debt always bad? Sometimes debt's not bad, but advocates of modern monetary theory suggest we can always print more money to pay the bills. That's sort of the side on which Warren Buffett tends to sit. Warren Buffett says we have a printing press, so none of this matters. Well, when you're worth 5060 billion doar, I'm not sure that you think as a normal person would. You certainly don't think as a hardworking person would. I don't agree with that, but even if default isn't a risk, the consequences of rising debt, they can't be and should not be ignored. Historically, no country has managed to sustain an ever increasing debt to GDP ratio. Economic growth slows, and countries like Japan, they face prolonged economic stagnation.

This debt crisis, why isn't this a bigger campaign issue? Both Republicans and Democrats, they used to agree on one thing: fiscal responsibility. That got thrown out the window a long time ago. Balanced budgets were once a bipartisan goal. Forget about it, that's gone. From 1998 to 2001, the federal government actually ran a slight surplus. Since then, both parties have found common ground on one issue, and that is deficit spending at staggering levels and raising the debt ceiling like it's just a walk in the park.

Neither candidate, Harris or Trump, in 2024 election debates or any conversation as it relates to the media coverage, we don't hear them talking about this. Now, that's not to say that they're not interested, but so far we don't hear even so much as a murmur about this kind of crisis avoidance. So Vice President Kamala Harris has focused on raising taxes for the wealthy and expanding social programs. That is inflationary, and that requires more spending and more borrowing. On the other hand, President Trump talks about extending tax cuts. The bottom line is neither candidate seems to have a concrete plan to rein in the debt. I think that Donald Trump's plan certainly has a better chance at reigniting this country's growth, and that means something that is better for all people. Kamala Harris, on the other hand, I'm not sure what her plan is, because she hasn't really talked about it, except that she wants to raise tax on the wealthy.

So what does this mean for you as an investor, and how will it affect your future as you try to build wealth? The national debt adds a layer of uncertainty to every market. Short-term political events like the debt ceiling debate, they tend to cause temporary market volatility, and the long-term impact of debt could be a lot more severe than simple volatility or vicissitudes in the markets. Slower growth, unpredictable inflation and the potential for higher taxes, these things pose real threats to your portfolio. Maybe not tomorrow, but certainly in the near term, as I said, maybe two years, maybe three, 5, 10. This out-of-control debt will absolutely affect all of us.

What I will tell you today is don't panic. A well thought out investment strategy is one of the keys to weathering this storm, and really all storms. Review your portfolio and ensure that it aligns with your risk tolerance, and diversify across asset classes like stocks and bonds, real estate, short-term investments, long-term investments. If you're a long-term investor who stays the course, you're better equipped to manage the risks ahead.

America's debt crisis is our collective problem. America's growing national debt is more than just a number. Literally, it is a ticking time bomb. As the campaigns roll on, we're getting closer and closer to a consequential election. Voters must demand solutions to this critical issue. This is the linchpin that can crush our nation.

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