The International Monetary Fund created a useful graphic to\ntrack global debt levels (blue line) since 1880. As you can see, World War II\nwas the last time the world was anywhere near current debt levels, and\ndebt-to-GDP dropped off substantially when the war ended. <\/p>\n\n\n\n
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When You\u2019re Uncertain About the Markets, Focus on Fundamentals!<\/a><\/strong><\/p>\n\n\n\n Global government debt is at its highest level. While the\nglobal economy is expected to grow, the market could still feel the impact of\nhigher debt loads. For investors, it makes sense to worry about ever-increasing\ndebt, but we think it makes more sense to stay focused on your<\/em> long-term financial situation and balance sheet. <\/p>\n\n\n\n To avoid having worries and concerns drive short-term\ndecision-making, it\u2019s better to focus on\nkey economic indicators that can make a positive impact on your financial\nsuccess.<\/p>\n\n\n\n To help\nyou do this, I am offering all readers our just-released Stock Market Outlook\nreport. This report contains some of our key forecasts to consider such as: <\/p>\n\n\n\n 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! ____________________________________________________________________________<\/p>\n\n\n\n Here in the U.S., the Federal Reserve Bank of St. Louis has\ncharted federal public debt as a percent of GDP since 1966, which you can also\nsee is very high relative to recent history. The debt issue will not get any\nbetter this year, either \u2013 the U.S. government is on track for a budget deficit\nof $3 trillion for the second year in a row, which does not even factor current\nspending plans making their way through Congress.<\/p>\n\n\n\n So, why is this global swell of borrowing happening, and\nwhat does it mean for markets and investors?<\/p>\n\n\n\n Let\u2019s start with the \u2018why.\u2019 Jump-starting the post-pandemic\neconomic recovery is of course a big driver of new spending. But behind this\nspending is the memory of a lackluster recovery in the aftermath of the 2008\nGlobal Financial Crisis, where many developed countries believe they did not\nspend enough and where fiscal austerity \u2013 particularly in Europe \u2013 started too\nquickly. Another popular economic theory is that aging populations, high\nsavings, and weak private investments are creating slack in developed\neconomies, and governments are increasingly stepping in with spending to boost\noverall output. <\/p>\n\n\n\n But perhaps the biggest driver of rising debt loads has to\ndo with cost. As government debt has become \u2013 and remained \u2013 inexpensive, it\nhas also grown in size substantially. Even as budget deficits swell and total\ndebt rises, the cost of borrowing in the U.S. (as measured by U.S. Treasury\nbond yields) has remained historically low. The government has passed multiple\ntrillion-plus dollar stimulus packages, and yet the yield on the 10-year U.S.\nTreasury remains well below 2%. In other words, the U.S. continues to issue\ndebt at a very low cost.<\/p>\n\n\n\n Long duration bond yields tell us about interest rates on\nnew debt, but another key metric to observe is how much the federal government\nis spending on debt (interest payments) as a percentage of total federal\nspending. In other words, if federal spending was increasingly going to make\ninterest payments on debt \u2013 instead of spending directly in the economy \u2013 then\nthere would be reasonable cause for major concern. But we are not seeing that\ntoday. The ratio of interest payments to total spending is also historically\nlow:<\/p>\n\n\n\n Just because borrowing and debt-servicing costs are modest\ndoes not mean rising debt levels are risk-free or even low risk. There are\nplenty of reasons to look forward cautiously. Inflationary pressures, which we\nare seeing currently here in the U.S. and abroad, can push interest rates\nhigher over time. If interest on debt ever exceeds a country\u2019s GDP growth rate,\nit could spell trouble for debt-servicing costs and maybe force a government to\nraise taxes or allow inflation to ease the debt burden \u2013 neither of which is a\ngood outcome.<\/p>\n\n\n\n Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n Government spending is in the formula for calculating GDP.\nWhen government spending goes up, it\u2019s a positive contributor to total output.\nThis is not to say government spending always creates a multiplier effect or\nleads to increases in growth and productivity. Many would argue the opposite is\ntrue, which is another topic for another day. <\/p>\n\n\n\n There are issues with too much\ngovernment borrowing and spending. Inflation can become an issue, interest\nrates can go up, and the private sector can be crowded out of financing\nand investing. At worst, if the government is picking winners and losers with\nspending, the private sector may respond by pulling back on investment in areas\nwhere the government is too big of a force. <\/p>\n\n\n\n The key to debt sustainability is having growth higher than interest rates. If an economy can grow faster than the interest rate paid on debt, then there is a good chance the debt will be manageable. This is the current situation in the U.S., but it may change in the not-too-distant future. <\/a><\/p>\n\n\n\n No\nmatter the current state of the economy, investors should always stay\nfinancially prepared. We recommend focusing on the facts and key data points\nthat can positively impact your long-term investments. <\/p>\n\n\n\n To help you do this, I am offering all readers our just-released August Stock Market Outlook report<\/a>. <\/strong>This report contains some of our key forecasts to consider such as: <\/p>\n\n\n\n
IT\u2019S FREE. Download the Just-Released August 2021 Stock Market Outlook<\/a>2<\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/3_pic1-3.png\")
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