{"id":9274,"date":"2021-02-01T12:42:21","date_gmt":"2021-02-01T12:42:21","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9274"},"modified":"2022-02-26T13:05:56","modified_gmt":"2022-02-26T13:05:56","slug":"should-we-be-worried-about-u-s-debt-levels","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/should-we-be-worried-about-u-s-debt-levels\/","title":{"rendered":"Should We Be Worried About U.S. Debt Levels?"},"content":{"rendered":"\n<p>Over the past four years, U.S. government debt held by the\npublic has swelled from about $14 trillion to over $21 trillion. Debt as a\npercent of U.S. GDP now tops 100%, meaning our debt exceeds our annual output.\nDebt as a percent of GDP has not been this high since World War II (chart\nbelow), when the U.S. economy was firing on all cylinders for wartime\nproduction.<sup>1<\/sup><\/p>\n\n\n\n<p><strong>Debt as a Percent of\nGDP Now Tops 100%<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/5_pic1-4-1024x395.png\" alt=\"\" class=\"wp-image-9275\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Federal Reserve Bank of St. Louis<sup>2<\/sup><\/em><\/strong><\/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_2021_02_01&amp;content=stock_market_outlook_report\">Focus on These Key Data Points Instead of Market Uncertainties! <\/a><\/strong><\/p>\n\n\n\n<p>While there are a lot of uncertainties impacting the market\nlike inflation, debt, the pandemic and more, focusing too much on these fears\nand uncertainties could negatively impact your long-term investments. Instead\nof focusing on fears and uncertainties, I recommend focusing on hard data and\nkey economic indicators that could impact your investments in the long-term.&nbsp; It\u2019s better to focus on the facts and data\nwhen it comes to making future decisions!<\/p>\n\n\n\n<p>To help you do this, I am offering all readers our\njust-released Stock Market Outlook report. This report contains some of our key\nforecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Economic expectations for 2021<\/em><\/li><li><em>2021 capital markets expectations<\/em><\/li><li><em>A look at Covid-19 and vaccine distribution<\/em><\/li><li><em>What produces 2021 optimism?&nbsp;<\/em><\/li><li><em>What of U.S. GDP growth?<\/em><\/li><li><em>A look at U.S. continuing claims for unemployment and Covid job data<\/em><\/li><li><em>Zacks Rank S&amp;P 500 Sector Picks<\/em><\/li><li><em>And much more<\/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!&nbsp;<br> <strong><br>IT\u2019S FREE.&nbsp;<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_02_01&amp;content=stock_market_outlook_report\">Download the Just-Released February 2021 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_02_01&amp;content=stock_market_outlook_report\">3<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p>Having debt at 100+% of GDP places the United States in the\nranks with countries like Greece, Italy, and Japan. For many investors, this\nalone is troubling. <\/p>\n\n\n\n<p>Over the long-term, I fully agree the current path of debt\naccumulation and deficit spending is not sustainable. With Social Security and\nMedicare\/Medicaid payments also ballooning, the U.S. is on track to have debt\nbe 200% of annual GDP by 2050. Never-ending deficit spending and exorbitant\ndebt to GDP ratios will make any country\u2019s debt less desirable, pushing\ninterest rates higher and higher in the process. The cycle cannot continue\nforever. <\/p>\n\n\n\n<p>Short-term, however, I do not see many problems with the\nUnited States borrowing more and spending more at the federal level. In fact,\nif there were ever a time to spend our way out of a crisis, now is probably it.\nAllow me to explain. <\/p>\n\n\n\n<p>In 2020, U.S. debt increased by $4 trillion, which marked a\nsignificant 25% jump from 2019 levels. Here is the kicker, however: while\nabsolute levels of debt increased dramatically, the interest payments on that\ndebt <strong><em>decreased\nby 8%.<\/em><\/strong>For new or existing\nhomeowners who decided to refinance or buy a second home (or a bigger home) during\nthis period of ultra-low interest rates, you can understand the appeal of\nborrowing more when it\u2019s inexpensive to do so. <\/p>\n\n\n\n<p>To offer a contrasting example, the last time the U.S. ran budget\nsurpluses was in the 1990\u2019s, when 10-year U.S. Treasuries \u2013 and by extension\nborrowing costs \u2013 exceeded 6% for most of the decade. Inflation was also a\nconcern. In periods like the 90s, when the economy was also expanding at a\nstrong clip, deficit spending was not needed nor was it incentivized. In a\nsense, it is the opposite of what we have today. <\/p>\n\n\n\n<p>As a general rule, if the economic growth rate is higher\nthan long-term interest rates (10-year and 30-year U.S. Treasuries), then\ncountries should be able to run moderate budget deficits while maintaining a reasonable\ncost of servicing debt. Today, we\u2019re expecting 2021 and 2022 GDP growth in\nexcess of 2%, and as I write the 30-year U.S. Treasury is 1.80%.<sup>4<\/sup> The\ncost of servicing debt should remain very manageable and relatively attractive\nin the coming years, in my view. But the window will not last forever. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>The key takeaway here \u2013 and the reason not to worry about\ndebt and deficits now \u2013 is that the U.S.\u2019s ability to borrow and service debt\nat a very low cost (interest rates) matters more than our absolute level of\ndebt. <\/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\nglobal investors not only want our debt, but covet it. In spite of all of the\nworld\u2019s and the U.S.\u2019s current problems, U.S. Treasury bonds are still\nconsidered among the safest investments in the world. This notion may puzzle\nmany investors given the political\/economic climate, but you don\u2019t need to take\nmy word for it. Just look at our interest rates. <\/p>\n\n\n\n<p>Giving in to fear and uncertainties could mean missing out on positives in store for the market this year. To help better position yourself for what\u2019s to come, I recommend focusing on what matters &#8211; key data points and economic indicators that could impact your investments. To help you do this, I am offering all readers our&nbsp;<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_02_01&amp;content=stock_market_outlook_report\">Just-Released February 2021 Stock Market Outlook Report.<\/a>&nbsp;<\/strong><\/p>\n\n\n\n<p>This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Economic expectations for 2021<\/em><\/li><li><em>2021 capital markets expectations<\/em><\/li><li><em>A look at Covid-19 and vaccine distribution<\/em><\/li><li><em>What produces 2021 optimism?&nbsp;<\/em><\/li><li><em>What of U.S. GDP growth?<\/em><\/li><li><em>A look at U.S. continuing claims for unemployment and Covid job data<\/em><\/li><li><em>Zacks Rank S&amp;P 500 Sector Picks<\/em><\/li><li><em>And much more<\/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!<br><br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The nation&#8217;s debt is now more than 100% of GDP\u2014a long-term concern, but it shouldn&#8217;t worry investors today<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9274","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\/9274","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=9274"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9274\/revisions"}],"predecessor-version":[{"id":10464,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9274\/revisions\/10464"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}