As of the second quarter of 2024, aggregate household debt approached $18 trillion, up from approximately $11.5 trillion, 10 years ago, and the Federal deficit topped $35 trillion, an increase of approximately $17 trillion, over the last ten years. Obviously, the average US household is spending more than it earns and the Federal government is spending more than it collects. This clearly reflects an inability, and/or an unwillingness, on the part of the holders of the household and national purse strings, to restrain spending to reflect available funds. Instead of separating the “must-haves” from the “want-to-haves”, we go for both, and just put the excess spending into new borrowing.
Investors should recognize that this cannot go on indefinitely. Centuries of history demonstrate that, sooner or later, continuous deficit spending ends badly. This is not to suggest that the economy is vulnerable to an imminent collapse. But habitual deficit spending can put pressure on the dollar and increases the chance of continuing inflation.
All comments and suggestions are welcome.
Walter J. Kirchberger CFA