This week’s Weekly Market Review details the punt elected officials used to allow our country’s new fiscal year to start October 1st. The government expects 3.2 trillion dollars in receipts, but unfortunately is scheduled to spend an additional 1.4 trillion more over the fiscal year. Watch this short video to put into perspective how much $1,000,000,000,000 really is. The rate of borrowing compared to the revenues/receipts is equivalent to a household with $100,000 of income spending $143,750 each year; can you imagine? The nation’s total debt is now somewhere between 23 and 24 trillion.
You would think a lender would never lend money to someone with so much debt. Incredibly, there is a gigantic appetite for our country’s debt, mostly by foreign governments who consider the US government the best, safe place to invest money and receive a return. The 10-year US treasury if purchased today, would pay about 1.69% a year, taking you 42.6 years to double your money. While that sounds like a terrible investment to me, it’s far more interest than you can earn in many other country’s bond’s. For example, Germany’s 10-year bond is currently yielding negative .53% per year. Yes, you get less than you lent back at the end of the 10 years. There are real discussions taking place that the US treasury may create a 50-year bond. While interest rates are so low, the US government could kick the can on paying lenders back for 50 years!
What allows a government to run such deficits and successfully issue so much debt? The $22 trillion dollar GDP/economy we have here in the United States. I would be the first to agree that this is a problem that needs to be addressed, but I’m not holding my breath that any elected official will put long-term fiscal responsibility ahead of their short-term partisan politics any time soon. As long as foreign investors keep lining up for our debt it is a license for our country to continue running these big deficits.
As an investor I prefer to double my money sooner than every 42.6 years. I’d much rather invest in well-run companies that manage for a profit and are more responsible with their debts and spending. One does have impact on the other, but they are certainly very different. It is easy to let head-scratching government spending clutter your investments decisions, as best you can, we recommend you try to separate the two.
As always, we hope you find the WMR both informative and interesting.
Have a good week!
Trevor N. Coe, CFP