It is a stunning milestone. The sheer scope of America’s indebtedness is not only historic but the pace of our debt accumulation is equally mind boggling. According to House Budget Chairman Jodey Arrington, we are adding a trillion dollars to our ballooning national liability every few months:
“It took roughly 200 years to accumulate the first $1 trillion. Now we add that in a matter of months. Every child in America today carries a $530,000 share of this debt — a crushing legacy we must reverse. Compounding the problem, we now spend more than $1 trillion a year just on interest to service our debt—more than the entire defense budget and triple the amount when Biden took office. The national debt continues to pose an existential threat to the future of our nation.” [1]
U.S. debt levels are not just outpacing the growth of the economy; they also pose a direct threat to everyday savers like you. As government debt continues to swell, it undermines confidence in the dollar, chips away at purchasing power, and weakens America’s position on the global stage. The fallout is already being felt as persistent inflation, higher interest rates, and heightened market volatility strain retirement accounts. Left unchecked, our escalating debt burden increases the risk of a broader financial crisis that could reach into every corner of your financial life.
The Dangerous Debt Cascade
When government debt rises to dangerous levels, it triggers a series of unpleasant financial repercussions. The cost-of-living increases, trust in the dollar declines, interest on outstanding debt grows, private investment wanes, and significant damage to the economy ensues.
But U.S. debt isn’t just growing, it’s snowballing. And what has been written off as a long-term issue is quickly accelerating into an imminent fiscal emergency impacting equities, bonds, real estate, and other dollar-based assets. But according to Fortune Magazine, the U.S. is not acting like a country in the throes of financial distress, and that’s a big problem.
“Rising tensions in the Middle East, including the conflict with Iran, are a reminder of how quickly economic conditions can shift. A disruption to global oil supplies could send energy prices higher, reigniting inflation and pushing interest rates upward. For a country already carrying more than $38 trillion in debt and spending more on interest than on national defense, that kind of shock would put even greater strain on federal finances.” [2]
Unchecked sovereign debt is a cascading crisis that can also lead to higher mortgage rates, weaker job creation, slower economic growth and collapsing consumer confidence. And, of course, all of this directly impacts your personal wealth.
The Timing Could Not be Worse
When it rains, it pours — and then it goes to war. The United States is currently engaged in Operation Epic Fury, a three-week old campaign launched with Israel to destroy Iran’s missile sites, military infrastructure, and nuclear capabilities.
The assault has triggered geopolitical instability across the globe and comes with an extraordinary price tag. According to the Center for Strategic & International Studies, the opening salvos of the attack were particularly expensive:
“The first 100 hours (H+100) of the operation are estimated to cost $3.7 billion, or $891.4 million each day. Some of these costs are already budgeted, but most ($3.5 billion) are not. The shift of U.S. forces to less expensive munitions and the steep decline of Iranian drone and missile launches will drive costs down. However, future costs will depend mostly on the intensity of operations and the effectiveness of Iranian retaliation.” [3]
The unbudgeted costs including ongoing operations, expanded munitions, and the replacement of lost military assets, could not come at a worse time for America’s balance sheet. We’re adding billions more to already historic debt levels as borrowing costs remain elevated and inflation is still a threat. At the same time, our financial flexibility is eroding, leaving us less equipped to respond to the next crisis when it arrives — which it invariably will.
A New Source of Portfolio Risk
According to the Committee for a Responsible Federal Budget, heavy U.S. debt loads can trigger any number of crises upending the economy, rattling the markets, reducing living standards, and jeopardizing the assets of every American. Here are six different possible economic outcomes that the committee is now warning policymakers to prepare for:
Financial Crisis: Reduced confidence in U.S. Treasury markets could lead to a spike in interest rates, panic among traders, devaluation of assets, freezing or slowing of credit, and failure of key financial institutions.
Inflation Crisis: Attempts to manage debt levels through monetization, artificially low interest rates, or financial repression could result in high and potentially spiraling inflation.
Austerity Crisis: Sharp tax increases and spending cuts enacted to stave off a fiscal crisis could create undue hardship, undermine demand, and push the economy into recession.
Currency Crisis: The U.S. dollar could face sudden and significant depreciation in response to fiscal stress, resulting in destabilization of markets and the economy.
Default Crisis: Policymakers could explicitly or implicitly default on debt, including failing to make debt payments or by restructuring existing debt.
Gradual Crisis: Living standards could gradually erode in response to rising debt, potentially causing as much or more long-term damage than an acute crisis. [4]
Debt upon debt, spending upon spending, deficit upon deficit — the current debt vortex is creating systemic risk across the economy. It’s not just eroding the strength and standing of the greenback; it’s also pressuring every asset priced in U.S. dollars.
According to Fidelity, soaring government debt is emerging as a new source of portfolio risk. As a result, they recommend diversifying to help manage volatility, preserve purchasing power, and prevent major financial losses.
“Diversification is hardly a novel concept: By holding a wide variety of investments, investors have a better shot at ensuring that at any given time, there’s at least some part of their portfolio delivering positive returns. While diversification does not ensure a profit or guarantee against loss, holding some investments that zig when others zag can help smooth out the ride a portfolio delivers—helping investors stick with their strategy and stay on track to meet their goals.” [5]
A Vital Shock Absorber
Gold has long been considered a strong diversifier. Historically, it has demonstrated a negative correlation to Wall Street and the greenback — and has functioned as a reliable safe haven during periods of risk and volatility. Against a backdrop of runaway federal debt, investors look to gold to help offset losses to a dollar-dependent portfolio.
And according to the International Monetary Fund, gold also offers peace of mind in a world besieged by fiscal uncertainty.
“For investors, gold functions as a psychological anchor. It promises nothing except permanence. A portfolio allocation of 5 to 10 percent to gold is often recommended not for returns but for balance—its inverse correlation with equities provides stability during market crises.” [6]
Suffice to say, gold has become a vital portfolio shock absorber and despite war, currency instability, and rising federal debt … it remains a core safe-haven asset held by central banks and investors seeking to preserve tangible wealth. Allocating 5% to 10% of your portfolio to gold is a prudent strategy in today’s debt-laden environment and rolling over retirement funds into a Gold IRA can be a seamless, tax-advantaged way to do it.
ORION METAL EXCHANGE is a top-rated
GOLD IRA DEALER with Best-in-Class CUSTOMER SERVICE.
Call for a FREE Investor Kit and up to $30K in FREE metals (on qualifying purchases).
REPRESENTATIVES ARE AVAILABLE NOW AT: 1-800-559-0088
1. https://budget.house.gov/press-release/us-national-debt-hits-record-breaking-39-trillion-chairman-arrington-calls-for-an-article-v-constitutional-convention
2. https://finance.yahoo.com/news/america-38-trillion-debt-crisis-100000601.html
3. https://www.csis.org/analysis/37-billion-estimated-cost-epic-furys-first-100-hours
4. https://www.crfb.org/papers/what-would-fiscal-crisis-look
5. https://www.fidelity.com/learning-center/trading-investing/new-diversification
6. https://www.imf.org/en/publications/fandd/issues/series/analytical-series/golds-lasting-luster
