The Congressional Budget Office (CBO) just recently published its projections on US government spending over the next decade, and the document is a doozy. CBO expects the federal deficit to reach $1 trillion this year, and to average $1.3 trillion between now and 2030. The total debt held by the public is expected to reach $31.4 trillion by 2030, an increase of over 80% from today. That increase in debt issuance will wreak havoc on the economy and impoverish American taxpayers and investors.
But you know what the worst part of CBO’s projections is? They’re probably erring on the conservative side. Looking back to CBO’s budget projections from August 2010, we see that CBO estimated that debt held by the public would be $15.281 trillion in 2019 and $16.073 trillion in 2020. But right now we’re already at $17.176 trillion of debt held by the public.
CBO’s projections from August 2015 estimated $15.528 trillion and $16.277 trillion of debt held by the public in 2019 and 2020, again well underneath the actual figures. So you can expect that the $31.4 trillion estimated for 2030 will likely be well short of the mark too once 2030 comes around.
It’s important to remember too that debt held by the public is just one component of the overall national debt. Intragovernmental debt holdings are the other component, and right now they’re at $6 trillion. And while the Social Security trust fund is expected to be drawn down and depleted by 2035, the government will still hold trillions of dollars in intragovernmental debt. So that $31.4 trillion in debt held by the public will be more like $36-37+ trillion of total federal debt. And remember, that’s likely a conservative estimate. The real number could well be north of $40 trillion.
Continuing issuance of debt will continue to burden American taxpayers, who will have to pay the bill that will come in the form of ever higher interest payments. As more and more of the US federal budget is made up of interest payments, the government will have to either curtail benefits, raise taxes, or weaken the value of the dollar. All of those will harm taxpayers, who will have to face fewer services from government, higher taxes, and higher prices throughout the economy.
Investors will also suffer, as businesses will get squeezed to provide more tax revenue too. With more and more economic productivity being siphoned off to pay for the government’s fiscal profligacy, economic growth with slow. Slowing business growth will mean slowed stock market growth, and investors will really have to work to find viable investment options.
One of the best options investors will have over the coming decade is investing in gold. Gold has outperformed stocks over the past 20 years and, given the likelihood of major stock market declines in the coming years, will likely outperform stock markets for the next decade.
Gold has helped investors protect their assets for centuries against rising government debt, higher taxes, and currency devaluation, and it will continue to play that role in the future. Investors who haven’t invested in gold are playing with fire, hoping that stock markets will continue their relentless rise. They’ll be disappointed when stock markets come back to earth. But like investors who saw their gold holdings win big from 2008 onwards, investors today who have invested in gold will be able to rest easy, knowing that their investments in gold will remain safe and secure.