America’s Debt Crisis: A Looming Disaster
The United States is facing a severe debt crisis that is rarely discussed in the media. By the end of this year, the Bank of America projects that the country’s debt will reach $34 trillion, the highest in its history. Furthermore, the bank predicts that the debt will continue to grow by $1 trillion every 100 days.
The Treasury Department reports that the government spent $429 billion on interest payments alone in the past year. This staggering amount surpasses the total spending on transportation, commerce, and housing combined.
The U.S. Bureau of Economic Analysis (BEA) estimates the country’s Gross Domestic Product (GDP) at $27.96 trillion as of 2023. This means that the debt exceeds the economy’s output by $6.04 trillion, an unsustainable situation.
Last year, America sold $22 trillion in debt while the Federal Reserve raised interest rates to combat inflation. However, this move has also increased borrowing costs, resulting in skyrocketing credit card debt and HELOCs. The yield on 10-year Treasury bonds is also approaching 5%.
In the past decade, America’s national debt has risen by 86%, while GDP has only grown by 63%, an unsustainable trend. The Treasury Department projects that the government will borrow $385 billion in May alone.
This situation presents a dilemma: either cut expenditures or raise taxes, both of which have significant consequences. The Federal Reserve is grappling with inflation but is also raising interest rates on all forms of borrowing.
Bloomberg’s Treasury Index currently stands at 4.81%, while their Investment Grade Corporate Index yields 5.71%. The High-Yield Index is at 8.27%, and the Municipal Bond Index has reached 3.70%. This indicates that not only the federal government but also individuals, corporations, and municipalities will face higher interest costs.
While inflation is a concern, the Federal Reserve’s focus on raising interest rates needs to consider the collateral damage it is causing. Cutting high interest payments should be a priority for economic stability.
To counterbalance the high cost of money, consider investing in closed-end funds and REITs that offer monthly dividends with yields exceeding 10%. Remember to reinvest the dividends each month to take advantage of compound interest, which effectively increases the yield over time.
