The US Govt Plan To Pay Off The Debt - Get Ready For Pain

追加: 2026-05-13

[00:00:00]Welcome back to Father and Son Investing. My name's Keith. Today we're going to be exploring this US government debt. Just what effect does it have on our economy? What effect does it have on your dollars or will it have on your dollars? And what is Congress going to do about it or really not do about it?

[00:00:19]So, let's get started. Any of you who have watched this channel know that I love graphs. Let's just take a peek here. Back in 2000, it was the government debt was 5.7 trillion. Back then, we thought that was a lot, not knowing just how bad it was going to get. Here we are in 2026 where it's 39 trillion. These numbers here in red are projections. By 2030, we're expected to add another 9 trillion to the debt. By 2050, we'll add approximately another 80 trillion to the debt. Some of you may ask, well, how does this compare to the size of our economy? Well, back in 2000, the debt was about a third the size of the economy. Here we are in 2026 where just recently it surpassed the size of our economy. So essentially 100% and a little bit. By 2050 it's expected to get to 156% the size of the economy. Now some of you may say well there are countries out there who are carrying larger debt as a percentage of their GDP.

[00:01:21]What about Japan? And to that I would say without trying to offend uh the Japanese government, take a look at how their economy has been doing this century. Now anyone who knows anything about borrowing money knows that they're going to pay interest on debt. So just what does the US government debt look like as a percentage of our budget? 14%.

[00:01:42]We're spending 14% of our annual budget to pay back money that we already borrowed. In fact, we're borrowing money to help pay back the interest. How dumb is that? We're spending more in interest than we are on national defense. And our national defense budget is pretty big.

[00:02:00]So essentially, this interest is compounding. We're paying interest on interest. Some of you may ask, well, what interest rate is the government currently paying? Well, according to this at us debtclock.com, 3.37% is the average rate that the government is paying. Now remember this has been kept artificially low because the treasury has been overissuing treasury bills which carry a lower interest payment than a treasury note or a treasury bond would pay. This all adds to the math of no return and compounding it is our US Congress. You know it's set of interest. Those that understand it receive it and those that don't pay it.

[00:02:40]And based on how much we're paying, I think Congress just doesn't understand it. Now, I suspect that's going to tip off a discussion about Democrats versus Republicans and how much they spend.

[00:02:51]Quite honestly, I think they all stink at it. We haven't had a budget surplus since back around 2000. Since then, every year it's just deficit spending.

[00:03:02]Sometimes more, sometimes less, but they're all spending more than they take in. Now, while this is listed by president, it's actually Congress who controls the power of the purse. They have no will to resolve this. They know that if they do anything to cut spending, they'll get voted out. They know that if they do anything to raise taxes, they'll get voted out. So, they're at a deadlock.

[00:03:25]How does this affect our economy? Will the US debt will continue to grow grow to such a measure that it will edge out investment in other places? But more specifically in this video, I want to talk about how this is going to affect your dollars, your pocketbook. Because here's what I think the default plan is.

[00:03:43]And just what is that default plan? I think it's hyperinflation. The government is essentially going to devalue the dollar so much so that they can pay back this $39 trillion in dollars that are worthless. We call this a technical default. In fact, I made a video about a year ago talking about when the government would technically default. We'll leave a link to that at the end of this video. Now, just what might this process of devaluing the dollar look like? We're going to call this financial repression. This is where the government keeps interest rates below the rate of inflation. The government, of course, controls the printing of money. So, by printing money to buy its own debt, we call that quantitative easing, something that happened back with the financial crisis earlier this century. The government can increase the money supply, which of course will dilute or devalue the dollar. So, who wins in this process?

[00:04:39]Well, the government does. Their $39 trillion of debt stays the same on paper, but it becomes smaller in real value as prices rise. Who loses in this process? Savers and anyone on fixed income. Their purchasing power is essentially taxed away without a single vote in Congress. Now, you may not believe the government won't do this, but history tells us this is what governments do. Think of Vimar, Germany, right after World War I. How did they get their reparations paid? Well, they started printing money like crazy.

[00:05:14]Prices doubled every few days. People carried wheelbarls full of money to buy a single loaf of bread. Let's use an example from our own history here in the United States. an example how the government went from 106% of GDP at World War II down to 25% by not paying it off at all but by outinflating it.

[00:05:36]Following World War II, the Federal Reserve explicitly capped interest rates to keep government borrowing cheap. They pegged the Fed's fund rate below 1% and Treasury yields at roughly 2%. So what did that do? Well, because inflation was often higher than 2%, it averaged 3 to 5%. The real interest rate was negative.

[00:05:58]That means bond holders were essentially paying the government for the privilege of lending them money. How might that look today? Well, if the Fed returns to what they called yield curve control, they would print money to buy enough bonds to keep rates from rising even if inflation hits 5 to 6%. What else did the government do then? Well, there was something called regulation Q. The government literally made it illegal for banks to pay high interest rates on savings accounts. Even as inflation rose in the late60s, banks were capped at around 5 to 6%. What's the trap here?

[00:06:34]Well, your money sat in a bank losing purchasing power every year because you weren't allowed to earn a market clearing rate. What might that look like today? Well, there is no more regulation Q. But what would a shadow version look like? Think of new regulations that could force banks to hold massive amounts of low yielding government debt as safe reserves. Therefore, if they are only receiving small interest from the government, they're not going to be be able to pay you large interest on your savings.

[00:07:06]Back then, under the Bretonwood system, it was much harder for citizens to move their money into other currencies or foreign assets. You were stuck in the dollar, making you a captive audience for the government's devaluing currency.

[00:07:19]If you can't leave the currency, you have no choice but to let it be inflated away. How might that look in today's version? Well, we could watch for exit taxes, taxes on moving your money abroad or tighter know your customer rules for cryptocurrency, rules that make it harder to move money outside the domestic banking system. Let's look at what the government did with pension plans. Back then, the government often nudged or forced pension plans or insurance companies to hold a certain percentage of their assets in government bonds. By doing this, institutions are forced to buy debt that they know will lose value, which directly eats into the future retirement checks of every worker. How might this look in today's version? Well, what if Congress were to quote modernize social security or private 401k rules that would require a portion of your retirement to be invested in what are called green bonds or infrastructure bonds, which really are just government debt under a different name. Just what will be the trigger for this hyperinflation process?

[00:08:20]Well, a while back I made a video about the bond vigilantes. We'll leave a link to this at the end of this video as well. When investors lose confidence in the dollar or the US government and their ability to pay them back, they're going to start to demand higher interest rates. Now, in order to keep interest rates low, the Fed has to start printing money and then buying those bonds that nobody else wants to buy.

[00:08:47]When that money starts getting printed again, it starts diluting the value of your dollar and we start seeing inflation at increased rates. That leads to more printing, higher inflation, higher interest demands, more printing, and this cycle continues.

[00:09:04]All right, I realize I sound like Chicken Little running around saying, "The sky is falling. The sky is falling." I've been thinking about this topic for at least a year, but I've just not been willing to make the video.

[00:09:15]Finally, I just have to do it. This what I've presented to you is really the ultimate political compromise. Why?

[00:09:22]Because it avoids pain in tax hikes.

[00:09:25]People don't want to get voted out for tax hikes and it avoids spending cuts.

[00:09:30]People don't want to get voted out for spending cuts. And so by default, this is the process that I see will happen.

[00:09:38]So of course, the next question your head hopefully is, well, what do I do about it? And really, the next few videos that I want to make are going to explore that topic. I hope you enjoyed this video. If you did, please give us a thumbs up and subscribe to the channel.

[00:09:54]If you didn't, please give us a thumbs up anyway. And until next time, enjoy your investing.