US National Debt hitting $21 Trillion - why isn't this being talked about more?


#1

In the past 6 months, the US Gross National Debt has increased $1.2 trillion, or to spell it out completely, in 6 months, it has grown $1,200,000,000,000. Put another way, in the last 6 months, the national debt increased by almost $4,000 per person in the US (325,000,000 currently live here).

I’m not here to fear monger, or whatever you want to call that, but this is absurd and something that should be talked about more.

At some point, I can’t feel comfortable living in my “index fund investing bubble” when things like this are occurring.

As personal finance bloggers, we talk about living within our means, paying down debt, and not irrationally spending. Why are so many media outlets ignoring this, like it’s not a big deal?

I don’t know what to think about this or what even to do about it. Obviously, as financially motivated individuals, paying down our debt for ourselves and family is important to not be a slave to the bank or government, but when investing, what is optimal? Is 90% stocks optimal when the US government possibly decides to start printing money to get out of their debt? I have no idea.

Just providing some food for thought and looking to spark discussion.

What are your thoughts on the National Debt? Are you worried about the outcome? Why aren’t more people outraged about this sort of crazy spending?


#2

it does worry me, and I think you are right many FIRE bloggers seem to gloss over the national debt and have a glib attitude towards risk in the markets.

The nation is on the edge of uncharted territory, population expansion during the last several decades has been a result of increased in longevity rather than increases in the birth rate. The baby boom generation is moving into retirement, and consumer spending will begin to decline.

The next several decades I think we will see global economic output decline on an inflation-adjusted base.

Cheap money and good times have created alot of ”experts.” promising people 12 plus percent a year return is much more ”sexy” than saying ”maybe we should be more cautious and use lower forecasted rates of return in our model, coupled with institutional protecting to reduce risk.”


#3

If you really dig into how the US financial sector actually operates, this debt is not really money we owe to other people, it’s money we printed ourselves (as you pointed out).

If most of the money is owed to the government and we can just print money, the likelihood of default is much smaller. Also, if US treasuries somehow actually defaulted, we’d be in a lot bigger trouble than just worrying about index funds. At that point, real estate wouldn’t save you and you’d need to be invested in crypto or gold. Foreign investors (including sovreign wealth funds) would also be in trouble as they’re heavily invested in US treasuries (safe haven and all) and equities.

Given the low (and negative) yields in other developed countries, the institutions of these other countries are chasing our relatively high/safe yield (yes, I know, such odd words).

I don’t know of a country that has printed money prior to a crisis, unless you count hyperinflation. QE came after 2008 for most countries except Japan (which started prior) and we’re still waiting on its outcome.

The above illustrates why I’m not worried about it, but I have no clue why the media is not reporting it. Maybe the billionaires who own the media want us to keep pumping money into the market? Or is that too much of a conspiracy theory? You’d think they’d believe they’d get a lot of clicks with titles like “US National debt ballooned to $21 Trillion” or whatever.


#4

@Michael_Dinich You bring up some great points, and I agree with you that caution should be taken. 2% inflation per year makes your dollar worth 50% less in 36 years (rule of 72). At some point, inflation doesn’t make sense - everything appreciating to infinity probably isn’t sustainable.

@birdsofafire I’m going to refrain from going full tin hat (though after a drink or two, I may go there), but I do think there’s some puppetry… In terms of default and your comments around that, I don’t think default will ever occur - hyperinflation through absurd printing will most likely happen many years before that.

Personally, I’m invested in some alt assets - but the greater majority of the population would get crushed under hyperinflation… Sure, we would all be millionaires in the stock market, but your dollar would be worth pennies.

Printing money only benefits those who own assets - and if the asset you hold have artificially high prices, then it’s just dangerous because if the bottom falls out, then look out below. I mean look at this chart of Bitcoin:

a582ruk7ta101

Oh wait! That’s the monetary base…

Jokes aside, I don’t really know what to think about all of this - it’s just interesting to bring up.


#5

Everyone always thinks it ”can’t happen.” The US has some serious monetary, demographic and social economic issues that will need to be contended with.

I’m 37 and own the home I will retire in (God willing) my parents (50) own two homes, my and my wife’s grandparents are all alive and own homes, ages range between 73 to 86. Cold reality is some time in the next 15 years or so 4 homes are going to hit the market. What do we do with all this housing? Baby boomers do not want the greatest generations homes, and young people are non existent and not interested.

Look at Medicare first baby boomer became eligible for Medicare in 2011, social security is already functionaly broke, where does the money come from to pay for baby boomers (26 of us population) virtually unlimited health care funded and financed by use tax payers.

You say no worries the fed will just print money, well it doesn’t work that simply. Printing money has consequences, like inflation. Inflation doesn’t just push prices up, it reduces standards of living and increases taxes. 50 years ago a high school graduate could support his family on a single income, raise a fee kids, go on a family vacation and save for retirement. Today it takes two incomes and everyone stugles. Personal debt is at all
Time highs.


#6

It isn’t talked about more because of a combination of an ostrich with head in sand reflexes and the fact that $21T is an absurdly large number. It’s hard to fathom. Remember when there were serious discussions about the government minting trillion dollar coins?

I think there’s a lot of kicking the can down the road and hoping that some solution presents itself in the meantime.


#7

I’m familiar with this chart. We haven’t seen much inflation yet due to the dynamic of the USD being a global reserve currency, as well as the banks being unwilling to lend to small business and individuals up until very recently. Shadow banking has stepped in to fill the void. Once the money makes its way into circulation, I fail to see how more than trebling the monetary base so rapidly can result in consistent 2-3% inflation long-term.


#8

If you really want to blow your minds watch the documentary I.o.u.s.a. Then consider that documentary was made tried to the financial crises, quanative easing, Obamacare, tax cuts etc.


#9

To the comments about inflation: yes, it is bad, and yes, printing money SHOULD create inflation according to economics 101.

Yet every developed 1st world country that has printed loads and loads of money has not experienced high levels of inflation like it should.

Japan - Started printing money in the late 1980s, continued to do so for the next two decades, and still hasn’t really tapered back all of it. No inflation. Not just low inflation, but none for the 1990s.

US - QE up the wazoo after 2008. Yet our inflation barely just reached 2 percent.

EU (including UK) - Did the same thing as the US, but inflation has been flat to slightly negative.

So, while hyperinflation might occur when printing money in developing countries like Venezuela, it isn’t occurring in developed countries in the last few decades.

I think the reason why might be due to buying power. When you print money, that causes bond yields to go down, so institutions/people move their bond portfolio more into stocks. While this creates a wealth effect for rich people, the people on the lower end of the ladder don’t get the wealth effect because they don’t own equities (or bonds). You end up with rich and middle class people having more money, but they can’t really spend more on the basics. You can only eat so much organic salmon. You spend things on luxuries instead. If poor people are still the same after all this, living paycheck to paycheck, your cheapest goods must stay anchored in price for them to keep buying your company’s goods.


#10

The reason both Japan and the USA have not experienced inflation the way one would expect is because the velocity of has decreased. The Japanese baby boom is approxitly 20 years younger than our baby boom. Japanese baby boomers began going on Japan’s version of social security in 91. If you overly the change in consumer in Japan with the Topix index you see whe two move in lockstep and plummet after 91.

Even with a robust export market the Japans
Economy never fully recovered and they have been in a bear market.


#11

I’m assuming you’re talking about the velocity of money.

Velocity of money decreases every time there is a recession. It has nothing to do with what age Japan’s baby boomers went on social security. Late 1990 was the year Japan’s stock market cratered 50% and real estate prices dropped drastically.

When a recession occurs, central banks intervene mostly through pumping money in the system. M2 increases and GDP isn’t able to catch up to it as a result of that, so velocity of money goes down.

Japan hasn’t been in a bear market. Their corporations have been gobbling up international companies like insanity due to the negative yields on JGBs. Just take a look at what SoftBank has been doing.


#12

By definition, money velocity increases when money is spent more frequently for final goods and services per unit of time.

The velocity of money can be influenced by several factors, one being decreased consumption. A dollar saved is a dollar not spent


#13

Yes, I definitely agree. Unfortunately, it will ultimately come back to the taxpayers who’ll end up footing the bill. :frowning:


#14

We can agree to disagree there. Sure, it increases when money is spent more frequently, but you can mask that with a lot of things (QE for one).


#15

I’ve seen this and asked the same question. I think what it boils down to is the simple fact that it really hasn’t had an impact. We haven’t had a recession in almost ten years and the deficit has skyrocketed in that time. Even before that, the various recessions, downturns, meltdowns, and bubbles all happened without the deficit as a root cause.

I think basically people just figure it isn’t a problem until it is, and so far it really hasn’t proven to be problematic.


#16

It’s political suicide to cut the entitlement programs that make up a growing portion of the debt. Maybe if there were term limits for Congress, they would make changes that are needed if these plans are to continue without massive tax increases or printing money.


#17

I don’t know a lot about the stock market as of yet, but the first thing I think of is that the media doesn’t report on this stuff because it benefits them not to. Media and advertising go hand in hand and advertising isn’t going to be very happy if people stop buying their (mostly) useless crap in order to get out of debt.


#18

The funny thing is people blame the entitlements programs but social security isn’t the problem. Social Security should be profitable for the government because the rate of return is less than two percent to the beneficiaries. It’s a nice safety net, but certainly not a stellar investment.