On Friday March 16th, the U.S. Federal government reached a new all time high benchmark with the amount of the national debt. It made its debut past $21 trillion. This number is so huge it’s hard to fathom.
One thing you can picture in your mind is that it is bigger than the whole annual economic output of the United States. That’s right, the U.S. Federal debt is greater than the whole American economy. Even this is not the most staggering part of the news.
The more startling revelation is that the size of the debt is expanding rapidly. In only the prior six months, the U.S. total public debt has increased by in excess of a trillion dollars. This is a dangerous pattern that breaks down to a monthly and daily level.
Just for the month of February the debt pile rose by an incredible $215 billion. It is an amount larger than the annual GDP of countries like Greece or New Zealand. In only a single day in mid-March, the debt of the U.S. increased by a stunning $73 billion. This amount is larger than most of the bigger corporations in the United States.
This all occurred while the American economy was growing steadily. Despite the economic performance of the country, the federal government added yet another trillion dollars to its historic and unsustainable debt load.
This is all sobering enough. It is not the worst of the news. The scariest part is that the nation’s debt is substantially outgrowing its growth in Gross Domestic Product. While the U.S. economy grew by 4.4 percent the nation’s debt increased by a greater six percent. Proportionally speaking the national debt outpaced the economy by 36 percent.
This may not sound like a huge number. Over time it compounds significantly and dangerously. Consider at the conclusion of 2008, the American economy stood at $14.5 trillion. Ten years on the economy has expanded to $19.7 trillion. This is a 36 percent gain.
In the same time frame, the country’s debt stock has risen to $21 trillion from only $9.4 trillion. This represents an incredible increase of 123 percent. The debt more than doubled in that time. This graph shows the U.S. Debt to GDP ratio:
There are many who would try to deflect the truth of the numbers by saying that much of this debt is held by other government agencies. It is not a lie to claim that the federal government owes a good deal of its debt to crucial institutions in the nation. Among these are the Federal Reserve, Social Security, and the banking system.
To argue that we could get away with defaulting on any of these agencies is ridiculous. If the country stopped making payments to Social Security or the Federal Reserve it would lead to the biggest and most lasting financial meltdown in the history of the United States.
Is Your Retirement Portfolio Protected from the Worsening Debt to GDP Ratio?
Just last week, Congress passed another trillion dollar deficit spending bill that took up over 2,200 pages. The U.S. government will not be able to continue to spend beyond its financial means forever. The good news is that you do not have to lose sleep at night worrying about the government’s unsustainable spending and debt. Gold is a time-tested asset hedge when governments spend themselves into bankruptcy. It performs best as this kind of uncertainty prevails.
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