Government Debt, Deficits, Future Spending Forecasts, Inflation, and You
Does how much our government spends affect us? How about inflation? Let’s take a look!
About as exciting as watching paint dry
I’m fairly confident that you weren't planning to or excited about analyzing government financial data today. Probably about as enthusiastic as I am to write about it. I mean, it’s about as exciting as watching paint dry. Or watching the grass grow. As thrilling as a wet weekend, as dull as a dishwasher. Choose your favorite idiom to describe something boring, and that’s what you get when you talk about government data.
Now, that said…we’ve discussed in the past the importance of educating yourself. What I want to do with this post is provide you with just a little high-level information to have in your hip pocket, which may help you as you plan your financial future.
And I need to know this because…?
OK, so look, I know that not a lot of people care about all this information, and even if you do, what are you going to do with it anyway? It’s not like you can change any of it, so who cares? And I’m right there with you. Except…
…that what the government says and does directly affects you, whether you like it or not. And if you can discern what the government is doing today and going to do over the next 20 or 30 years, then that will give you a better idea of how you should prepare your financial plan to weather any situation that may come about. As I’ve discussed in the past, it’s always best to hope for the best but prepare for the worst. That way, no matter what happens, you are prepared. The last thing you want to do is have a rosy or overly optimistic view of the world, only to be surprised later in life when things go bad and you are unprepared. I can imagine few things in life more depressing than working a long career only to have to scrape by when you are in the fall and winter seasons of your life. So let’s dig into a few pieces of data that affect you, like it or not.
Government debt
Before we get into government debt, let’s define it. Debt is a financial obligation where one party, the debtor, owes money to another party, the creditor. It is essentially borrowed money that requires repayment and typically includes interest. Interest is the amount the creditor charges the debtor to borrow money. You understand this if you have a mortgage, a car loan, or a credit card that you carry a balance on. Click on the link in Note 1 to read more and see a rather disturbing chart of where this is going. If you have a savings account at a bank, the bank pays you interest for using your money to lend it to others.
Dave Ramsey is a financial guru who advocates that no one should ever have debt, except possibly for a 15-year mortgage. If you can follow Dave’s seven steps to financial freedom, you won’t go wrong. Millions have and do. Click on the link in Note 1 to learn more about Dave. I never really followed Dave or his advice, per se. I don’t know why, but I don’t think I ever knew about him until I was well on my way with my own plan that worked for me. However, I do agree with many of his concepts and use them myself. I tell you this to say that if you can live your life debt-free, like Dave advocates, you will be better for it. It’s not, however advice our country follows…
As I write this, the gross federal debt is $36.2 trillion and projected to be $37.1 trillion for FY 2025 . This is the highest it’s ever been. Ever. At the end of fiscal year 2024 (September 30) it was 35.46 or 120.7% of the Gross Domestic Product. This means that for 2025, we will be higher than 120.7%. This is the highest percentage level since 1946 (approximately 119%), as the country was exiting World War II and recovering from increased wartime spending. Click on the link in Note 3 to view the chart (it’s a couple of years old, but you’ll get the gist of it). Study the rapid rise in debt since 1980.
There is a second chart on this page, titled “Accumulated Gross Federal Debt.” Accumulated gross federal debt represents the accumulated debt of the US Government as a result of all federal borrowing from the founding of the US until the present. Notice the spikes around wars (civil war, WWI, WWII, War on Terror) and various crises such as 9/11 and COVID. Notice it is currently at its highest level ever. Yes, ever.
Let me put that into plain language everyone understands. The US government debt burden equates to over $94,000 per person in the US or over $240,000 per household. When you are ready to write a check for your share, contact me for the address to send it to.
When you hear these numbers, what do you think? Do you think it is acceptable? How long can we continue like this? What effect do you think this has on your individual and family financial future? Some folks think this is OK. I don’t, do you? Countries in the past have failed because of excessive debt
If a country cannot pay its debt, it goes into default. Just like you or I would if we could not pay our debt. To see what the consequences are of this, click on the link in Note 4. Here’s a hint: It’s bad.
OK, well, that was fun. Let’s talk about a few more data points regarding our US government.
Budget Deficit
A budget deficit can occur in individuals, companies, or governments. It is what occurs when the entity spends more money than it earns. In short, expenses exceed revenue. According to the Congressional Budget Office (CBO), the federal budget deficit is projected to total $20 trillion for the period 2025-2034. For 2025, this equates to about $1.8 trillion. Click on the link in Note 5 to learn more.
How long could your family continue in this manner? Projections extend out to 2034, showing no end in sight. Who will pay for this budget deficit? Well, I don’t know for sure, but I’m guessing the answer is you and me in the form of higher taxes.
A balanced budget?
There is no requirement for the US government to balance its budget, although there have been periodic calls for an amendment to the Constitution to do so. Interestingly, every state except Vermont has a balanced budget requirement. Some states even have debt limits. Hmmm, is this a good idea? Seems like it to me!
Future spending forecasts
Click on the link in Note 6 and refer to the chart located approximately midway down. We have not had a match between revenue and spending since about 2001, and projections out to 2054 show only a widening gap. If you or my family were to project excessive spending that far ahead, what would happen? I don’t know about you, but in my opinion, this doesn't seem sustainable.
In the “world according to Dave,” what it seems like to me is that our country really has a spending problem more than an income problem. As I read and watch the news, I’m appalled at how much and what we spend our money on. Then the question becomes, and this is the hard part, who, that is getting government money today, are we going to stop giving it to tomorrow? Just sayin’…
Inflation
Inflation is defined as the increase of goods and services over time. It means that each of us needs more money just to keep the same standard of living as we have today. For example, if inflation is 5% and you make $100,000 a year, you will need to make $105,000 next year just to keep your same standard of living you have today. If you can’t make 5% more, then either you will have to accept a lower standard of living or increase your debt by borrowing money. Often, this shows up as credit card debt. Click on the link in Note 7 to see US historical inflation data from 2015 to 2025. As bad as this may be, it’s worse for the world in general. Click on the link in Note 8 to see more and then be thankful we live in the United States, as bad as it seems to be. Is your pay keeping up with inflation? If not, how are you adjusting?
Let’s look at one more set of statistics, and then we’ll wrap it up for this week
US consumer credit card debt
Family credit card debt is a telling indicator of a family's financial well-being. Click on the link in Note 9 and see the trend since 2004, which shows a doubling of US household debt in this 20-year period. Has your non-mortgage debt increased by 100% during this time? If so, how are you handling it? If not, why hasn’t yours? Do you see this as a problem for the US economy? If families are required to pay more debt, what does that do for the money they would otherwise spend? It’s this spending that drives the US economy, don’t you know.
Bottom Line
I’m not an economist, but just a guy like you trying to make it and enjoy my life a little bit. I love my country and those around me, and I want us all to do well, but these statistics worry me, and I hope they worry you too. As individuals, we can’t do much about it, but what we can do is plan in ways to protect ourselves and our families. That’s why I advocate for taking care of our financial lives. That’s what we do at Afterburner Success Partners.
That’s all for this week!
What’s in it for Me
Knowing how your government collects and spends money is directly related to your own financial life. It's best to be educated and informed so you can protect yourself. That’s what’s in it for you this week.
Call to Action
It's best to get on top of your financial affairs and get your own financial house in order. Take the Afterburner Success Partners course to get on track!
Recommended Resources
Study the data in the links listed below. If that’s not enough to call you to action, I don’t know what is.
Up Next
How much do I need to retire, or what’s my number part 4.
Notes
Please note that as an Amazon Affiliate, I may earn a small commission on the sale of any of these recommended resources.
Fast Facts about the US Federal Debt, CATO Institute: https://www.cato.org/blog/fast-facts-about-us-federal-debt?gad_source=1&gad_campaignid=85808169&gbraid=0AAAAADusmudXXxKTFB2i-waj9v9clFHYI&gclid=Cj0KCQjwxo_CBhDbARIsADWpDH5aDFUX8KymXmyTt3qZDssyisnQ3nMer4do1Vb5aXh-6HCrgiLdltIaAoYxEALw_wcB
Debt and Deficit Facts, usgovernmentspending.com: https://www.usgovernmentspending.com/debt_deficit_history#google_vignette
What Happens When a Country Defaults by Cointelegraph: https://cointelegraph.com/learn/articles/what-happens-when-a-country-defaults
The Budget and Economic Outlook, Congressional Budget Office: https://www.cbo.gov/publication/59710#:~:text=In%20CBO's%20projections%2C%20federal%20budget,continues%20at%20a%20moderate%20pace.
Chart Pack: The US Budget, Peter G. Peterson Foundation: https://www.pgpf.org/article/chart-pack-the-us-budget/?utm_term=federal%20budget%20breakdown&utm_campaign=The+Budget&utm_source=adwords&utm_medium=ppc&hsa_acc=1523796716&hsa_cam=1482082493&hsa_grp=181724430687&hsa_ad=746182190372&hsa_src=g&hsa_tgt=kwd-282848664&hsa_kw=federal%20budget%20breakdown&hsa_mt=b&hsa_net=adwords&hsa_ver=3&gad_source=1&gad_campaignid=1482082493&gbraid=0AAAAADhh2DqQMZmgriXeI4tmr3L6n0AU8&gclid=Cj0KCQjwxo_CBhDbARIsADWpDH498buVdqrGquRmSyEGqfDkS6Fy9tubwXGdf1DeYC_D6p2wERTx-tQaAtVeEALw_wcB
US Inflation rate, Trading Economics: https://tradingeconomics.com/united-states/inflation-cpi
World Inflation Rate 1981-2023, Macrotrends: https://www.macrotrends.net/global-metrics/countries/wld/world/inflation-rate-cpi
US Household Debt and Credit Report, Federal Reserve Bank of New York: https://www.newyorkfed.org/microeconomics/hhdc