If you are making any type of purchase these days, you’re without a doubt experiencing firsthand the effects of inflation. Today, we’re going to talk about inflation in our economy and the impact of inflation and the national debt on our country.
Currently, the national debt in the United States is about to exceed $31 trillion. You see, it really doesn’t matter how we got here. That’s water under the bridge. The question becomes, what does $31 trillion in debt mean for you and me?
Having $31 trillion in debt really limits the options that our government has to combat things like inflation. You see, prior to 2022, the Federal Reserve, our central bank here in the United States, was artificially holding interest rates down to try and stimulate the economy. Well, what that causes or creates is inflation.
You see, by printing more money to stimulate the economy, all they really did was flood the economy with more money, chasing the same amount of goods and services. And when there’s more money chasing the same amount of goods and services, you’re pushing prices up, which causes inflation. So in order to combat inflation, the Federal Reserve, with the help of our government, is looking at increasing incrementally interest rates over time.
Here’s the problem, with $31 trillion in debt and inflation at around 8%, you have to raise interest rates at least to the level of inflation, about 8%. Now, here’s the problem. Our choices as a country of addressing this inflation crisis are really limited. And here’s why. At 8% interest on $31 trillion of debt, you’re looking at over $2.4 trillion of interest alone. Well, what does that mean? Think of it this way. $2.4 trillion of interest represents about 40% of all the revenue our government brings in. And that is a huge problem.
Well, let’s take a look at what that could mean for you and me. Let’s start with the question what is the government’s source of revenue or income? Well, it’s really easy. It’s our taxes. What would it mean for our country if 40% of our taxes was going just to interest on debt alone? Now, although these are huge numbers, it kind of relates to what happens in a household when there’s too much debt. A lot of times it’s hard and it becomes suffocating. And I’m sure we’ve all experienced that.
So you may be wondering how does that impact you and me? And the question is, what does the government normally use the revenue to do? Well, it’s to support government funded programs, things like Medicare, Medicaid, Social Security and other government funded benefits.
The next question is who’s going to elect the officials that are going to say, “Hey, yeah, no, cut back government spending. We don’t need those programs for our citizens anymore.” You see, our government only has two ways that it could address a crisis. It could address it legislatively by increasing taxes, having more money that they can use to solve the crisis. The second way is to print money or do it administratively through the Federal Reserve.
Here’s the problem. We’ve printed money and printed money and printed money. That’s always been the answer because you see, to raise taxes, people see that and feel that immediately. But printing money creates inflation, which we don’t necessarily see at least immediately. We see it ultimately in the form of inflation. And that’s where we are right now.
This is why we call inflation the stealth tax. It’s because it’s real sneaky and it sneaks up on us and all of a sudden our dollar has less purchasing power. Well, it doesn’t necessarily make sense to print more money when you’re trying to combat inflation, because that would just cause more inflation.
So that leaves us with one thing, and it’s raising taxes to solve this problem. So the question really comes down to this how do you protect yourself, your family, your business and your money from the devastating effects of both inflation and the potential for taxes to go up in our country?
And remember, it’s not how much money you make it’s how much money you keep that really matters.