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U.S. Will Soon Spend More Financing Debt Than Military Defense

US will soon spend more money financing its debt than military defense

The Federal government may have already depleted every resource it needs to respond to future recessions and to maintain other spending priorities. Sounds outrageous? It isn’t. The information is publicly available. You just have to do the math and you may come up with the same projection. The US will soon spend more money financing its debt than military defense. 

Three things to consider: the increase in borrowing costs to finance its ballooning budget deficit, the current tax cuts, and rising interest rates–all of these factors significantly increase the government’s current debt.

What does this mean overall? It means that the government may soon be unable to spend on much-needed programs like Medicaid or even the military, for it will find itself overburdened by interest payments.

With less money coming in, the government may have little to no room to financially maneuver when it comes to financing even the simplest of domestic priorities, such as fixing or maintaining roads, bridges, and other critical infrastructure.

If the government can’t even maintain spending on these basic priorities, chances are that it will not have the financial firepower to pull the US out of future recessions. It’s a dim prospect.

Look at it this way: Within ten years, the government will need to pay more than $900 billion annually just to cover the interest alone on its debts.

This is more than the government is currently spending on most of its programs.

By next year, interest costs will reach $390 billion–a figure that is 50% greater than in 2017, according to the Congressional Budget Office (CBO).

The rising interest rates in debts accumulated over the years were worrisome enough–it made borrowing much more expensive without any additional debt. But last year’s tax cuts–the one that most Americans were cheering–may be the one thing that puts the US on the fast track toward a deeper financial crisis.

If the government would have reduced spending, that alone might have provided some relief. But as we know, the White House actually increased, not decreased, its spending.

This puts the government in a tight spot: less money coming in as a result of the tax cuts, and more money going out (increased spending), “everything else is getting squeezed,” says C. Eugene Steuerle, fellow at the Urban Institute and a co-founder of the Urban-Brookings Tax Policy Center in Washington.

Next year, the deficit is expected to rise to $1 trillion. Note that this is the first time that our deficit has reached that level since 2012. And in 2012, our interest rates were near zero as we were struggling to recover from the financial crisis.

Let’s take a look at a few main factors affecting our economy:

Interest payments on the national debt are forecasted to triple over the next decade (CBO).

Interest payments on the national debt

Debt as a share of GDP, which typically falls during recovery, is actually increasing due to tax cuts and government spending.

Debt as a share of GDP

Interest payments, expected to make up 13% of the entire federal budget, will squeeze out other spending priorities (e.g. infrastructure, Medicaid, defense, etc.).

This was a non-issue when the Fed set interest rates near zero. Such low interest allowed lawmakers to borrow without having to worry about the costs of taking on such debt.

The Fed has begun raising interest rates, and it will continue to do so… which is part of the reason why the government has become overburdened with debt.

When the Day of Reckoning Comes, the US Will NOT Be Another Greece

Hawkish lawmakers and economists are warning about the day of reckoning when the US may find itself in a dire situation similar to that of Greece. But chances are that’s not going to happen, and here’s why.

The dollar is still the world’s reserve currency. If the Fed decides to run the printing presses yet again, the repercussions will be less severe than if central banks in other countries did the same.

Why is that? Nations across the world may still end up buying US Treasury Bonds, as it remains one of the most favored assets in their portfolios.

As William Gale of the Brookings Institutions said:

“We exported a financial crisis a decade ago, and the world responded by sending us money.”

Government Borrowing/Dollar Increase

So lawmakers may continue to spend while maintaining or reducing taxes.

But in the end, what will this mean for the average American taxpayer? What will rising interest costs and bigger deficit mean to your assets and wealth? How might it severely reduce your own purchasing power?

The answer is clear: it’s going to be a train wreck. And of course, you know the only way to hedge against this potential catastrophe. If you don’t, contact us for a free one-on-one consultation and we can offer several strategies for you to save your hard-earned wealth and ensure your future.

Request a free copy of our Definitive Guide to A Self-Directed Retirement.

It’s better to know your options and to have the freedom to take some degree of action now rather than to do nothing and to face the consequences of inaction later.

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