As you can see from this chart, national debt just passed through the $13 trillion mark. If I were snarky, I would write that it ‘unexpectedly’ passed $13 trillion, which is the term used by many in the media any time we have negative news these days. If you have been reading this blog, this milestone is anything but unexpected.
Source: CBS News
As you can see from the chart, national debt is growing quickly. In fact, it now only takes us six to seven months to add on another trillion dollars of debt.
A Trillion Here and a Trillion There
…after a while it adds up to real money (Hat tip: the late Sen. Everett Dirksen).
The Congressional Budget Office (CBO) has looked at the future and it is not so good. We face enormous budget deficits far into the future. This chart compares an earlier CBO estimate with a more recent one based on new information from the President’s Budget. The lighter blue bars tell the tale:
Source: Congressional Budget Office
Debt: To Infinity and Beyond
Looking at this chart, it becomes quite obvious we will need to issue a lot more debt. Now, just for the record, I am not one of those who thinks government debt is all bad. Nor, do I believe we need to pay off all of our debt. The key element for new debt is to make sure we incurred that debt for something productive. These days, I fear much of our new debt is not productive. In addition, there is a point at which accumulating more and more debt becomes dangerous. Growing our debt ‘to infinity and beyond’ (Hat tip: Buzz Lightyear) is very dangerous indeed.
Lean Years & Fat Years
Our current problem is that the economy is still very sluggish. We are no longer in a recession, but we face serious impediments to strong economic growth such as high unemployment, a stagnant real estate sector and gloom in the small business sector. Cutting back on government spending is very difficult now. Unfortunately, government at every level went wild on spending during the boom times, so now we have so much accumulated debt that our options are limited.
As investors, whether in stocks or bonds or real estate, the financial soundness of our governmental balance sheet is of critical importance. Maintaining that soundness is all about keeping expenditures well below tax revenues in good times so that budget cutbacks don’t have to happen in recessions. Unfortunately, we the people and our representatives, seem to have forgotten that basic fact, at the local, state and national levels.
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Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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