How Could US Debt Affect Our Portfolios?

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Learn about forecasts for the US debt and payments on that debt. What could it mean for our equity portfolios?

US Deficit is Huge

I hear this all the time: 

The US government is spending money it does not have.

You might hear someone say this too! Many of us believe the US government needs to behave like a household. We think the government should stick to a budget. Our belief that the US government needs to stick to a budget is the problem, according to Modern Monetary Theory (MMT).

Truth be told, the US government has not stuck to a budget in more than 20 years. Here is the deficit in a chart:

The year before the dot-com crash was the last time the US government ran a surplus. Every other year was a deficit. Modern Monetary Theory (MMT) believers tell us the surplus brought about the economic crash! MMT says the government should run a huge deficit. I guess they are happy. We have a massive deficit, and an even more massive debt.

US Debt is Even More Huge

We have never had a bigger Federal debt, as the chart below demonstrates.

This is not a reason to panic, says Blackrock. Interest rates are at historic lows so the US government can afford to pay this debt.

Here is the cost of the debt to the US Government:

This next chart is a future guess at the cost of the debt to the US government. The IMF forecast says we have nothing to worry about. Even the forecasts cause only a little concern.

The US has Huge Debt Payments

Interest payments on the debt will eat up the overall US government budget. The next chart forecasts the interest payments. Again, Modern Monetary Theory believers will tell you not to worry about this. 

This is still not a problem. If you believe in Modern Monetary Theory, you know the US government can always pay all of its debt; as long as the debt is owed in US dollars, the USA will be able to pay. But I digress.

We are not here to debate MMT. We are here to invest.

What Does the US Debt Mean for Our Investments?

The leaders of world countries are practicing MMT. The USA is among many countries increasing their debt. If you are interested in this, and what we can do about it, then join us for our next Lunch & Learn event, on April 8, with Dr. Thomas Howard.

Stock and Stock Funds

We:

  1. Invest in companies in the USA and the world.
  2. Choose mutual funds, ETFs and direct equity investments.
  3. Believe the US debt is one of many factors to consider.
  4. Are more confident in international investments than in years past. 

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About the author

Karl Frank, Certified Financial Planner ®, MSF, MBA, MA, is the President of A&I Financial Services LLC, a local business that specializes in wealth management, insurance planning, and retirement planning. Karl cares for business owners and the businesses that care for them. Learn More about Karl.