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Hi Taylor
- People have been talking about our country's overspending and outrageous
debt for so long that I think I've gotten numb to it. So, question:
how does it affect me? Why should I be bothered by the US carrying
a balance?
Hi Sam - This is a great question. The concept of debt gets
hammered constantly and the people beating that drum mostly forget
to tell people why it matters. There are a lot of problems that can
stem from excessive spending, but it's not as simple as "debt is bad."
Let's dig a little deeper. |
1. Interest
and inflation. The first of these problems is very real, the
second is real but harder to predict. With interest, it obviously
just makes our debt problem worse. You've seen interest rates
on your credit cards or car payments—now imagine paying interest
on trillions of dollars in loans. It's a frightening amount of
money to be paid, and it's only sustainable until it's not anymore.
That issue runs parallel to the fear of inflation going up again
and devaluing our dollar even more. We're on the other side of
some historically bad inflation, and while that wasn't expressly
caused by US spending, our deficits definitely didn't help. When
a dozen eggs cost $9, you can't ignore how flippantly our country
is spending money.
2. Future flexibility. Obviously, we can continue to borrow
as long as we pay our debts. We remain a very wealthy country
with an AA+ debt rating (down from AAA a few months ago, which
is a little alarming). If you ask any investor, they'll tell you
that debt can be an invaluable tool for making money. Unfortunately,
when an investor is overleveraged and something goes wrong, the
bottom can fall out really quickly. Should we deal with some kind
of economic disaster or multiple crises arise at the same time,
we run the risk of not being able to pay our debts, and then those
disasters and crises will only get worse. Does the country's future
stability affect your ability to buy lunch today? Not really,
but it sure could in a few years if things take a turn.
3. How's the money being spent? Here's the question that doesn't
get asked enough and a lot of politicians choose to ignore. We
have a huge amount of national debt and we keep on spending, and
that's in large part due to the fact that we have a lot of things
to spend on. Our military, our borders, our infrastructure—none
of these expenses can be ignored completely. When the issue of
national debt gets raised and how that affects you personally,
you should consider what's driving the debt and whether or not
you support those measures. After all, you can't be in favor of
certain spending and then get upset when it costs money.
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| Our debt affects
us all in various ways, some more pressing than others. It's important
to understand where it comes from and how we can deal with it, so
I really appreciate the question. Hope this was helpful, Sam! |
| Legal Disclaimer:
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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