Most people believe that the US Debt of $27T has to be paid back just like a mortgage would be paid back. Well, that is not exactly how it works! When a debt payment is due, the government does what is called “rolling the debt.” Say a debt of $50M is due. The government would then go borrow $50M and use what they borrowed to make that payment. The federal government isn’t the only one who does this. Corporations will use this technique as well.
A useful indicator to look at when assessing the economy is the confidence in investors that it is sustainable. To do this you compare the federal debt to the GDP. If the economy is growing and the debt is growing then there isn’t an issue. Unfortunately, due to coronavirus, the debt-to-GDP has increased significantly which is not sustainable.
At my wealth management firm, MarketCipher Partners, we think about investment decisions as a combination of human insight and artificial intelligence. If you would like to learn more check out our website: https://www.market-cipher.com/
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