Still No Signs of a Debt Crisis in the U.S.
Let’s talk about debt.
For most people, debt is a polarizing topic.
To some, it’s a four-letter word, akin to an expletive…
For instance, I know people who have been talking about the U.S. “debt problem” as if it were a catastrophic issue since the early ‘80s.
To other people, debt is a means to “leverage up” and acquire assets — a way to gain great wealth and power…
President Trump is a perfect example. He’s previously referred to himself as “the King of Debt” – and he means that as a good thing. Debt is what allowed him to become a multibillionaire and the largest developer in New York City.
Now, those are the two extremes, and there are a myriad of interpretations in between.
Ultimately, debt is a very complicated, nuanced thing.
But here’s one universal truth about debt: It doesn’t matter… until it does.
That is, anyone – a person, corporation, even a country – can rack up debt for years without consequence. And it only gets interesting when one of two things happens…
- The lender demands the money back
- The borrower’s cash flow falls below what’s needed to meet the debt’s interest payments.
With that in mind, let’s talk about the U.S.’s debt situation…
U.S. Puts Off Debt Issue, Increases Spending
The U.S. currently has over $22 trillion in debt.
This means our debt-to-GDP ratio (the ratio between our debt level and the total annual output of the U.S. economy) is an incredible 106%. This is not good.
And to make matters even more worrisome, the U.S. just almost hit its debt ceiling, the legal limit to how much debt the U.S. government can issue.
Congress controls this number via legislation. And as of last week, there were fewer than seven days for Congress to reach a deal with the U.S. Treasury to expand the amount to ensure the U.S. didn’t enter a technical default.
However, on Monday of this week, Congress and the U.S. Treasury came to an agreement, pushing back the debt ceiling issue for two years and opening the door to even GREATER discretionary spending by the U.S. government.
Shockingly, the U.S. dollar didn’t even blink…
U.S. Dollar is Going Strong
Look at the below chart of the U.S. dollar. Do you see any indication the U.S. dollar is even remotely concerned about this situation? I don’t.
This is what makes this issue so complicated. It’s true the U.S. has too much debt. But until our currency begins to plunge dramatically, we’re in no danger of a debt crisis.
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Editor, Money & Crisis