Here’s Why Government Debt Will Only Get Bigger...

What Happened?

Interest rates are falling… slowly.

That’s the message from the Federal Reserve.

The minutes from the Fed’s November meeting suggest there could be more rate cuts, but not yet.

Which probably means zero chance of a rate cut at the mid-December meeting.

But of course, the real story behind interest rates is inflation. What’s happening with inflation right now, and does the Fed (and the rest of D.C.) really want inflation to fall?

Why it Matters

There’s only one important number you need to know when it comes to the government.

And that is the current level of the national debt. Right now, the federal government is in debt to the tune of $36 trillion.

That number will only grow.

For the simple reason that that government spending and debt is at such a level it’s almost impossible for it to stop spending.

And even if it could trim a little here and there, it would barely make a difference.

Right now, when you add up federal government spending such as Medicare, Medicaid, Social Security, Defense, Veterans Affairs, and interest on debt (plus one or two other things), this totals around 94% of all government spending.

Where can the government cut without annoying one big demographic or another?

It can’t cut Medicare, Medicaid, or Social Security. That would be bad PR… easy for opponents to label it as ‘cruel and heartless’.

It can’t cut Defense spending, as people would see that as an attack on America’s national security.

Can it cut the interest bill on debt? Lowering interest rates would — theoretically — help with that. Except that lower interest rates would only encourage more government spending due to the lower cost of financing.

So what will happen?

How it Affects You

We know everyone is making a big deal about Elon Musk and Vivek Ramaswamy heading the ‘Department of Government Efficiency (D.O.G.E.). But for the reasons mentioned above, it’s hard to see how they can cut existing spending, let alone pay off debt.

In our view, there are only two options.

One is for ‘business as usual’. That D.C. will forget about debt levels and will continue doing what they’ve been doing.

The second option is the Fed and government will allow inflation to run at a higher level than it has in the past.

Of course, the third option is they do both!

Whatever the outcome, one things is for sure, governments are addicted to spending tax dollars. There’s no getting away from that. The best protection you have against this to invest in assets that typically offset the curse of inflation.

Over time, that has been gold, real estate, and stocks. Naturally, they each have their own pros and cons. The important thing is to assess the risk of each, and how much you’re willing to invest in each so that you can sleep at least reasonably well.

Inflation has soared over the past three years. We don’t expect it to be much different in the years ahead. It’s a good time to prepare for that.