There are no good solutions: the Federal Government’s Unsustainable Debt Problem

The U.S. Government Accountability Office (GAO) recently completed an audit of the federal government’s financial statements and found that the government continues to face an unsustainable long-term fiscal path. This is not surprising, given the federal government’s history of deficits and mounting debt.

In 2022, the US government spent $6.27 trillion and collected $4.9 trillion in revenue, leaving a deficit of $1.38 trillion, according to the U.S. Treasury. This trend is unsustainable in the long run.

To put this into perspective, the federal government budget last had a surplus in 2001, one of only five times it had a surplus in the last 50 years. Every other year, the government has been running deficits – spending more money than it is collecting in revenue.

The national debt has been steadily increasing, recently reaching a record high of over $31.5 trillion according to the US Debt Clock. This debt burden is expected to continue to grow, as the government shows no signs of cutting spending any time soon, and in fact the perpetual battle of raising the debt ceiling has returned to Washington yet again.

There are a number of reasons why the federal government is on this unsustainable long-term fiscal path. One factor is the aging population, as more people are retiring and requiring government benefits such as Social Security and Medicare. These programs are projected to become increasingly expensive in the coming years, putting further strain on the federal budget.

Another factor is the rising costs of healthcare, which have been growing faster than the overall rate of inflation. This means that healthcare spending is consuming an increasing share of the federal budget, and this trend is likely to continue in the coming years.

Other factors include the cost of interest payments on the national debt, the increasing costs of defense and other government programs, and the need to invest in the deferred maintenance of crumbling infrastructure and other critical areas.

To address these challenges, the federal government would need to take a comprehensive approach to fiscal management. This could include a combination of spending cuts, revenue increases, and reforms to entitlement programs such as Social Security and Medicare, none of which are politically popular proposals.

In the long term, the government would need to address the underlying structural factors driving its fiscal challenges, such as the rising costs of healthcare and the aging population. This could involve reforms to the healthcare system, as well as policies to encourage more people to work and contribute to the economy.

Ultimately, addressing the federal government’s long-term fiscal challenges will require difficult choices and a willingness to make tough decisions. However, the consequences of inaction are clear: a growing debt burden, increasing interest payments, and long-term risk to the country’s economic stability and prosperity.

How long can this continue? As long as there are still buyers of US debt out there. But if those buyers begin to worry about default or if other investments begin to seem more attractive, the government could be forced into a course correction and the ensuing price inflation in the domestic economy could potentially reach catastrophic levels.

One way to protect your personal finances from such a disruption would be to invest in tangible assets that the government cannot print, such as real estate or precious metals. Precious metals are much more liquid than real estate and more tangible than cryptocurrencies. Many experts recommend an allocation of 5-20% to precious metals for balance and diversification. Call Lear Capital to get started.