May 7th, 2025
Fed Chairman Jerome Powell, and many other Economists, have warned the Country time and time again, that the growing National Debt is “unsustainable.”
As the annual interest payments on the National Debt approaches One Trillion Dollars per year, and is now more than the Government spends on National Defense, ($820 Billion), and slightly under what the Government is required to spend on Social Security Payments ($1.2 Trillion) we can start to see why this economic situation is “unsustainable.”
A major measuring yardstick which reflects the credit status of a Country, is the ratio of the Country’s National Debt, (ND) divided by the Country’s Gross Domestic Product, (GDP). For most of the past century this ratio was well below 1.00, except for the period of WW2, when it reached 1.3. This year it appears that this critical ratio may set a new unfavorable record high of 1.4.
Why is this ratio important?
Investors consider this ratio when looking at the risks involved when purchasing a Country’s long-term bonds. The worse the ratio, the more risk is associated with their investment in these Bonds.
All other factors being equal, investors would want a higher interest return, and the more difficulty attracting investors.
As a government is forced to offer higher interest rates to attrack investors, the interest they must pay to roll over existing debt issued over the past years also increases.
This causes interest rates to rise and for the country’s currency to weaken, as investors fear that the money they get back in say 10 years or more, will not have the same value, or purchasing power, as it has today. A cup of coffee that cost 10 cents, in 1970’s cost over $2.00 (or more) today.
The price of GOLD is a useful measure of the loss of purchasing power of the currency. The price of Gold in 1970’s was around $320/oz. Today, it is around 10X that level at $3,200/oz.
This leads to an unsustainable economic situation, although no one knows for sure the “breaking” point.
What is scary, is that the Trump/GOP controlled Congress is looking to add Trillions to the National Debt over the next 4 years, while the Trump tariffs are likely slow growth of the Gross Domestic Product as we enter a recession.
Although this is not investment advice, I think you should consider (together with your own investment advisors) the advantages of having some percent of your investment portfolio in Precious Metals, such as GOLD and SILVER ETF’s, Stocks, and Gold Coins.
P.S. As dangerous as the Debt/GDP ratio is for the United States, knowledgeable watchers of China suggest their ratio is even at a more dangerous level, although it is difficult to determine the accuracy of the numbers.