United States Federal Debt Surges To $26.5 Trillion

Before presenting my analysis, I want to post two charts that give the U.S. GDP and the U.S. Federal Debt.

Image One

Gives the U.S. GDP. For the second quarter of 2020, the GDP was $19.5 trillion

Image Two

Gives the U.S. Federal Debt. As of September 2020, the total Federal debt was $26.5 trillion.

What It Means

Currently, the debt to GDP ratio for the United States is 136%. Public debt has been swelling as the government continues to pursue deficit spending.

At some point of time, higher debt will result in "Crowding Out" of investments from the private sector of the economy. Since the private and household sectors are the dynamic sectors of the economy, crowding out of investments will decelerate GDP growth further.

Additionally, the huge debt burden comes on the future generation of Americans. As debt swells, it might imply higher tax rates in the future. Therefore, once the pandemic triggered slowdown is over, the U.S. government needs to focus on deficit reduction.

From an investment perspective, higher debt implies higher debt servicing cost. In turn, it would result in more money printing. Investors need to have exposure to hard assets like gold and silver. In addition, a global portfolio diversification is essential.