When it comes to breaking records, we often think of achievements that deserve to be celebrated, like an Olympic runner reaching an impossible-sounding new speed. But then there are those “other” records. Like the lowest-scoring Super Bowl in history. Or like our national debt, which hit $22 trillion this week—the highest level ever.
The debt rises, of course, when the government spends more money, whether the spending is for social programs or defense. The other factor is insufficient tax revenue to cover the spending. Last year, a $1.5 trillion tax cut package was passed, which means less money will be coming in the government’s door.
A rising debt level is nothing new—it has been increasing throughout our history. What is a bit alarming is the rate of increase over the last decade. During the Obama administration, the national debt nearly doubled from $10.6 trillion to $19.9 trillion—an average increase of $1.16 trillion a year. Unfortunately, that trend is continuing under President Trump, at a current rate of just under $1 trillion a year.
Another way to look at the debt level is to compare it to our gross domestic product (GDP). GDP represents the value of all goods and services produced in the country. Back in the 1970s, the ratio of debt-to-GPD was in the low 30 percent range. During the 1980s (the arms race era), it increased to about 55 percent. By 1995, it was up to 65 percent. And today? It has reached 104.1 percent, meaning we now have more debt than GDP.
Most of us would agree that a large national debt is not a good thing. However, reducing it can be a double-edged sword. Lowering government spending sounds like a good plan. But what if the reduction comes from Medicare? Would you still support the idea?
The other way to reduce the debt is to increase taxes. If increases are levied on corporations or the uber-wealthy, many Americans would be fine with that. But what if a tax increase affects you?
Occasionally clients ask me if the debt problem is affecting their investments. While the increase in the national debt over the decades hasn’t been a positive development, the good news is that despite the burgeoning debt, the stock market has continued to climb.
If you’d like to learn more, check out this article on the national debt and where it’s headed.