Since the 1980s, the total Federal debt in the United States has been trending higher. The growth in total Federal debt has further accelerated since the financial crisis of 2008-09.
The slowdown due to the novel coronavirus pandemic has triggered another sharp increase in total government debt.
As the chart below shows, the total government debt as of Q2 2020 stands at $26.5 trillion.
The second chart below gives the debt-to-GDP for the United States. It was surged to 135%.
Why is this so important?
First, the debt burden is on Americans. If debt continues to swell, the negative impact will come in the form of higher taxation. Or invisible taxation (inflation)
Second, when government debt surges, it generally results in crowding out of investments from the private sector. The household and private sectors are the growth triggering sectors of the economy.
Therefore, as government debt increases, GDP growth is also impacted.
Its also worth noting that if interest rates trend higher, the debt servicing cost will also increase. I will not be surprised if we reach a point where additional debt is needed to service existing debt.
From an investment perspective, higher debt implies higher inflation in the coming years. Investors need to have exposure in hard assets like gold and silver.
Dollar has, and will continue to lose value in the coming years.