Should financial advisors be worried about Uncle Sam’s debt problems?
Americans got their household finances in order during the COVID recession, thanks to billions and billions of dollars in government support. By shoveling out all that relief, however, good old Uncle Sam saw his balance sheet substantially deteriorate.
The question now is whether Washington’s profligacy is one more thing financial advisors need to worry about for their client portfolios.
The US Treasury Department finished 2023 with a national debt of more than $34 trillion. That $34 trillion tab also happens to be bigger than the entire American economy. US GDP increased 4.8 percent at an annual rate, or $327.5 billion, in the first quarter to a level of $28.28 trillion.
Net interest costs on all that debt reached $659 billion in fiscal 2023, up 39 percent from the previous year, according to the Treasury Department. That means a lot more money that could have been spent on business investment is going to bondholders. It also erodes confidence in the U.S. dollar and creates concerns that the government will be forced to cut funding for programs like Social Security and Medicare.
It also means taxes will likely be going up in order to chip away at the debt, something financial advisors absolutely need to consider for their clients financial welfare.
And the problem will only grow more acute in coming years, according to Stephen Rich, chairman and CEO, Mutual of America Capital Management.
“There’s almost $9 trillion which is coming due this year or maturing that needs to be reinvested, so our interest payments alone for fiscal 2024 are $870 billion. That’s going up to almost $1 trillion next year,” said Rich. “So there is not only the absolute amount of debt we have, but then also the continuing of having higher and
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