$15 Trillion – What is the U.S. National Debt Anyway? (VIDEO + Debt Clock)

U.S. National Debt Clock (National Debt Counter)

You see that number ticking above?

That number represents the current Gross U.S. National Debt , currently the largest in the world.

It wasn’t always this big, however it recently topped $15 trillion with much of it’s growth occurring in the last twelve years alone. This is not to be confused with the U.S. Federal Deficit, which is only represented as a per annum figure of government spending over revenue received that year alone (In Fiscal Year 2011, the budget deficit was projected to be $1.267 trillion). It is important to note that each year the deficit is added to the debt.

National Debt Chart:

Here are the billion dollar anniversary dates that got us to where we are today:

$6 trillion – May 15, 2002

$7 trillion – January 15, 2004 (20 months)

$8 trillion – October 18, 2005 (21 months)

$9 trillion – August 31, 2007 (22 months)

$10 trillion – September 30, 2008 (13 months)

$11 trillion – March 16, 2009 (6 months)

$12 trillion – November 16, 2009 (8 months)

$13 trillion – June 1, 2010 (7 months)

$14 trillion – January 4, 2011 (7 months)

$15 trillion – November 15, 2011 (10 months)

Note that we went from $10 trillion to $11 trillion in less than half-a-year during the depth of the 2008 financial crisis.

What the U.S. National Debt Is:

The Size of the U.S. Debt:

The U.S. debt is the largest in the world, but  how did it get so large? Purchasers of Treasury bills still reasonably expect the U.S. economy to recover enough to pay them back. For foreign investors like China and Japan, the U.S. is such a large customer it’s allowed to run a huge tab so it will keep buying exports.

Government debt is an accumulation of budget deficits. Since the Reagan Administration, the Federal government has been cutting taxes while increasing spending. Spending includes the economic stimulus package, the 2008 government bailout measures and the roughly $800 billion a year military spending. The deficit is also caused by reduced income from the recession, as well as the EGTRRA and JGTRRA tax cuts and the Alternative Minimum Tax patch.

In the short run, the economy and voters benefited from deficit spending. Usually, however, holders of the debt want larger interest payments to compensate for what they perceive as an increasing risk that they won’t be repaid. This added interest payment expense usually forces a government to keep debt within reasonable limits.

National Debt History:

Watch Tony Robbins discuss the $15 trillion U.S. national debt

The U.S. Debt Ceiling:

The U.S. also has a debt ceiling, which attempts to limit the debt. However, Congress usually raises the ceiling to prevent the negative consequences of a debt default.

Second, foreign countries increased their holdings of Treasury Bonds as a safe haven, also keeping interest rates low. These holdings went from 13% in 1988 to 31% in 2011. During the recession, countries like China and Japan increased their holdings of Treasuries to keep their currencies low relative to the dollar. Even though China warns the U.S. to lower its debt, it keeps buying more Treasuries.

How The U.S. Debt Affects the Economy:

Second, many of the foreign holders of U.S. debt are investing more in their own economies. Over time, diminished demand for U.S. Treasuries could increase interest rates, thus slowing the economy. Furthermore, anticipation of this lower demand puts downward pressure on the dollar. That’s because dollars, and dollar-denominated Treasury Securities, may become less desirable, so their value declines. As the dollar declines, foreign holders get paid back in currency that is worth less, which further decreases demand. The bottom line is that the large Federal debt is like driving with the emergency brake on, further slowing the U.S. economy.

What is Inflation?

Inflation is the number threat to your financial well-being. This occurs when the prices of goods and services increase and each dollar buys less. Consequently, your standard of living falls.

What causes Inflation?

One of the primary causes of inflation is overexpansion of the money supply. That’s when a glut of capital in the market chases too few opportunities. It’s often a result of expansive fiscal or monetary policy, creating too much liquidity in the form of dollars or credit.

What can I do to hedge against Inflation?

One of the best hedges against inflation is in the investment of precious metals such as gold, silver, platinum and palladium. These metals have been used a standard of real value since the dawn of civilization. Take gold for example, gold has been the established monetary standard for centuries.

During times of inflation, people have turned to gold for profit and protection. Gold, unlike paper currencies or other commodities, has retained its value during both crisis and calm periods throughout the history of civilization. Trade between countries frequently is based on gold value as the most reliable currency. While paper currencies have been devalued, eroded by inflation, and become virtually worthless, gold has maintained its purchasing power

Silver is attractive because of its comparatively low purchase price in relation to gold. In terms of growth potential, silver is the best performing commodity (not just precious metals) over the past decade. The history of silver shows that, like gold, it is money. The big difference is that while silver is money, it is also an industrial metal. Did you know that in over 14 languages the word for “silver” and “money” are the same? You’ve heard of the gold standard, but it actually replaced the silver standard in the 1800’s. Unlike gold, whereas most of the mined stock is still in existence, most of the mined silver has been used up and is in relatively short supply!

It doesn’t really matter what metal you choose to invest in, the most important matter is how much you can afford. A general guideline is that 20% of your investment portfolio should be allocated for precious metals which will provide solid protection for your hard earned wealth.

Sources:
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm

http://abcnews.go.com/blogs/business/2011/11/u-s-debt-will-top-15-trillion-mark-today/

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You can learn more about gold and silver at the resources below or by contacting a representative at Corner Asset Metals.

» Contact Cornerstone Asset Metals today to learn more about buying precious metals as an investment.

Past performance is not an indication of future potential values.

» Read our article: The Best Way to invest in Silver

Past performance is not an indication of future potential values.

» Read our article: The Best Way to invest in Gold

Past performance is not an indication of future potential values.

» Read our article: Is Silver a better investment than Gold?

Past performance is not an indication of future potential values.