{"id":8756,"date":"2020-07-27T15:34:14","date_gmt":"2020-07-27T15:34:14","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8756"},"modified":"2022-02-26T13:06:34","modified_gmt":"2022-02-26T13:06:34","slug":"can-the-u-s-afford-our-rising-debt","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/can-the-u-s-afford-our-rising-debt\/","title":{"rendered":"Can the U.S. Afford Our Rising Debt?"},"content":{"rendered":"\n<p>The U.S. budget deficit \u2013 which is the difference between\nwhat the government spends and earns (tax receipts) in a given year \u2013 soared to\n$3 trillion in the twelve months ending June 30, 2020. Spending rose\ndramatically in recent months in response to the pandemic, while tax revenue\nplummeted. In the month of June alone, the federal government spent $864 <em>billion more than it earned<\/em>, which\nalmost equals the entire deficit posted in fiscal year 2019.<sup>1<\/sup> <\/p>\n\n\n\n<p>There\u2019s more \u2013 Congress returned from summer recess on\nMonday, and a top priority on the agenda is to weigh the question of even more\nstimulus. As it stands today, additional spending appears to have bi-partisan\nsupport, though details may take some time to iron-out. The bottom line, in my\nview, is that more spending is coming, which should put the U.S. on pace to post\nits largest deficit as a percent of GDP since World War II.<\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_7_26&amp;content=stock_market_outlook_report\">Stocks Rarely Wait for Optimistic News, and Neither Should You!<\/a><\/strong><\/p>\n\n\n\n<p>Stocks have been up as a result of optimistic news\nsurrounding a potential Coronavirus vaccine as well as positive economic data. But\nif you would have waited for optimistic news articles to enter circulation, you\ncould have missed the upswing in the markets. This is why trying to time the\nmarkets can be such a dangerous game.<\/p>\n\n\n\n<p>Instead of market timing, I recommend focusing on the\nlong-term and making decisions based on data and fundamentals. To help you do\nthis, I am offering all readers our just-released Stock Market Outlook report.\nThis report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>S&amp;P 500 yearend targets<\/li><li>Is it time to buy stocks?<\/li><li>What should you think about\n\u2018unbelievable\u2019 jobs data?<\/li><li>International outlook<\/li><li>Zacks S&amp;P 500 sector picks<\/li><li>Impacts of Coronavirus<\/li><li>And much more<em><\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_7_26&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released August 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_7_26&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<p>Rising deficits each year means the amount of total debt on the\nU.S.\u2019s books keeps going up, too. The image below shows total U.S. federal debt\nas a percent of GDP over the years, which as readers can see, keeps pushing\nhigher. I know many readers feel uneasy about endlessly rising debt (currently over\n$25 trillion), and worry about how and when the \u2018chickens will come home to\nroost.\u2019&nbsp; <\/p>\n\n\n\n<p><strong>On the Rise: Federal\nDebt as a % of GDP<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_image-1-of-1-1024x395.png\" alt=\"\" class=\"wp-image-8757\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>I empathize with concerns over rising debt and out-of-control\nspending rising, but I do not necessarily share those concerns. There\u2019s a\ndifferent way to think about debt and deficits, which for many people goes\nagainst the grain of everything they know and understand about debt. <\/p>\n\n\n\n<p>When folks think about debt, they almost always default to\nthinking of it in personal terms. The car loan you have to pay off. The credit\ncard debt collecting interest. The mortgage, student debt, and health care\nbills potentially piling up. Apart from mortgage debt, which can help a\nhousehold build equity, the other categories of debt are viewed negatively.\nDebt is bad \u2013 it detracts from your net worth, and interest you pay on debt is\nthe equivalent of losing money (unless, for instance, you borrowed money to\nstart a business that is generating revenue).<\/p>\n\n\n\n<p>When thinking about the United States, however, it is\ncritical not to think about debt or deficits in personal terms. For one, the\nUnited States economy does not have an end date. Humans may only live to be 80\nor 90, which means we have a limited number of years to get debt off our books.\nBut the United States economy could technically exist in perpetuity \u2013 growing\nover time, borrowing over time, paying off debt via tax revenues over time,\ngrowing more, borrowing more, paying off more debt, and on and on. <\/p>\n\n\n\n<p>Borrowing money for the U.S. has basically never been\ncheaper. As of July 15th, the yield on the 30-year U.S. Treasury bond stands at\n1.33%. Ask yourself: if you could buy a house with a 30-year mortgage rate of\n1.33%, would you borrow the money and buy it? The United States can currently\ngo out into the debt markets and borrow money at next to nothing, using tax\nreceipts from our $20 trillion economy to make the interest payments. According\nto the U.S. Treasury, net interest costs \u2013 which represent the cost of\nborrowing money \u2013 fell 11% in the first nine months of the fiscal year.<sup> 4<\/sup>\nThe U.S. has never missed an interest payment, and probably never will in your\nlifetime. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>The key takeaway is not to think about the U.S.\u2019s absolute\nlevel of debt, but to consider <em>our\nability to continue making interest payments on our debt over time<\/em>. <\/p>\n\n\n\n<p>In a debt crisis, investors would worry about a country\u2019s\nability to make interest payments and repay debt, which would push interest\nrates higher \u2013 not lower. You may remember Greece in the years following the\n2008 financial crisis, when bond yields soared and the country could not sell\nbonds in the debt markets. The European Central Bank had to step-in to buy\nGreek debt and backstop outstanding debt, and eventually Greece was able to\nre-enter the debt markets. <\/p>\n\n\n\n<p>The United States does not have this problem today. As the\nmost diverse and wealthiest economy in the world, I think it\u2019s clear that global\ninvestors not only want our debt, but covet it. In spite of all of the world\u2019s\nand the U.S.\u2019s current problems, U.S. Treasury bonds are still considered among\nthe safest investments in the world. This notion may puzzle many investors\ngiven the political\/economic climate, but you don\u2019t need to take my word for\nit. Just look at interest rates. <\/p>\n\n\n\n<p>Debt and interest rates are only two factors that impact the current market landscape. In addition to these factors, I recommend keeping an eye on other economic indicators and data points that could impact the markets. To help you look at the whole picture and other sectors and stocks that are doing well, I am offering all readers our Just-Released <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_7_26&amp;content=stock_market_outlook_report\">August 2020 Stock Market Outlook Report. <\/a><\/strong><\/p>\n\n\n\n<p>This Special Report is packed with newly revised predictions\nthat can help you base your next investment move on hard data. For example,\nyou&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Zacks S&amp;P 500 sector picks<\/li><li>S&amp;P 500 yearend targets<\/li><li>Is it time to buy stocks?<\/li><li>What should you think about\n\u2018unbelievable\u2019 jobs data?<\/li><li>International outlook<\/li><li>Impacts of Coronavirus<\/li><li>And much more<em><\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>5<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As Congress considers a new round of stimulus,  Mitch looks at our nation&#8217;s ability to repay its debt<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8756","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8756","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8756"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8756\/revisions"}],"predecessor-version":[{"id":10571,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8756\/revisions\/10571"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8756"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8756"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8756"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}