A Wiser Retirement®

298. America's Balance Sheet: A Financial Advisor's Deep Dive into National Debt

• Wiser Wealth Management • Episode 298

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In this episode of A Wiser Retirement® Podcast, Casey Smith, Andrew Pratt, CFA, CBDA, and Shawna Theriault, CFP®, CPA, CDFA®, dive deep into the state of America’s national debt, what it is, how it got this large, and what it could mean for the country and for everyday investors. While it’s common to compare government debt to household finances, national debt is far more complex because the U.S. government controls its own currency. Still, unchecked debt growth has long-term consequences that shouldn't be ignored.

Related Podcast Episodes:
- Ep 277: Tariffs, Trump, and Turbulence: Making Sense of Market Mayhem
- Ep 263: Trump’s Economic Policies: Tax, Tariffs, and More

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National Debt Overview

Speaker 1

Yeah, I'm here with the wiser king of data, andrew Pratt, and I wanted to get Andrew in on this episode because we're talking about national debt and, man, you know it keeps getting bigger. How big of a problem is it? I go back to this whole thing with Trump and Musk and the bromance is over If you go back and listen to the All In podcast and you listen to the interview of how they recruited Musk to do what he did. The whole thing was he was supposed to be the guy to find a trillion dollars worth of waste and then be the guy to find a trillion dollars worth of waste, and then they're going to get a trillion dollars worth of tariffs.

Speaker 3

Optimistic yeah.

Speaker 1

And then they're going to not tax anybody who made less than $150,000 a year. That's how they recruited him, right. And then they were. They were going to, you know, have a balanced budget in the end, cause that's about what. The deficit was around 2 trillion, and when the big beautiful bill came out, which is a little more costly, uh well, it depends on who you talk to. If you talk to administration, they say the growth will solve the problem. There'll actually be a surplus.

Speaker 1

They have a typical talking point from every administration, every administration says that, uh, you look at other reports and it makes it worse, and so that's why I got upset. So I just go back to everyone here. Probably listening to the podcast understands how money works in their household. Right, and if your debt keeps getting bigger and bigger and bigger and you don't have the income to service that debt, that becomes a problem. But at a national level, where you control your currency, things are a little different. You can still create problems, right, it's, but yeah, so let's just talk about, let's go back to, what is national debt. How do we get here and what do you see in the data that you look at every week?

Speaker 3

Yeah, I think it's important maybe just to kind of take a step further back and just talk about this is the. If you look at a balance sheet from the US perspective, as a country, as a nation, what does your balance sheet have as assets and liabilities?

Speaker 3

So, from an asset standpoint, that can mean anything from um, you know, the gold reserve and land land investments, um, you know, military equipment, mount Rushmore, even student loan obligations, um, which you know, hopefully those get paid back. Um, those are assets. On the liability side, you know it's primarily composed of the national debt and that really includes, you know, they'll issue Treasury securities and it's really obligations that are owed to domestic and foreign investors. It also includes unfunded obligations, or, you know, obligations to entitlement programs like Social Security and, just you know, future obligations like Medicare and other entitlement programs. So if you just take, you know, going back to the balance sheet aspect of it right now, you know the liabilities farly outweigh the assets and so we have a negative net worth.

Speaker 1

You know there's a lot of different data out there, but from what you know, everything that's that's hard for me to believe that the U? S has a negative network.

Speaker 3

Well, so how this is presented. Yeah, I mean, you could talk about GDP and other total global influence, but from just based on the liabilities and the assets. Yeah, I agree, it's probably messaging wise. It's probably not.

Speaker 1

Does that count the oil under the ground that hasn't been pulled out yet? Probably not, right yeah?

Speaker 3

you're exactly right, I mean. So it probably could be a frame better, but just based on those two components, the assets and liabilities. You know, maybe we should just say you know, national debt it's right now outweighs the assets by um 33 trillion. Wow. So it's about the debts about 37 trillion assets, give or take about four to 5 trillion. Um, so that's where we stand right now.

Speaker 3

Um, so I think really it's, you know, not to keep kicking the can on the road.

Speaker 3

I think it's definitely it's a problem I'm, you know, concerned about and something that needs to be looked at with caution. But, you know, for real life implications, I think, you know it's really still five to 10 years away, or even maybe longer, to where it has severe impacts and, you know, to our future generations. But it's obviously a problem that Congress needs to get serious about. On both sides of the aisle and you know, every administration has policies and they talk about it, but they also want to see their agenda to fruition and they keep, you know, issue more debt and they there's, you know, larger deficits. So it's, it's a it's a serious problem that needs to be addressed sooner than later. But as far as real-life implications, the next five to 10 years. I don't think it's really going to impact us, but we can see there are some impacts already. Longer-term treasury yields are rising a little bit because I think global markets are saying, all right, well, there's a little bit more risk here and the yields are indicating that risk.

Speaker 3

So, it is kind of getting priced in in some of the data.

Speaker 1

So when you think about, you have the national debt, but then what gets added to the debt is your spending. So we're spending how much per year? Right? More than we should.

Speaker 3

Yeah, so right now, and you know there's actually a good chart that we have in here that shows, like, the fiscal deficits since 2000. And and we actually really haven't had a surplus, I believe, since it's 2001. So we've basically had a deficit 25 years, yeah, for that timeframe. So it it is. You know, I hate to say normal, but it is typical in the past 25 years to have a deficit. You know, the problem is these deficits are kind of growing and there's no mitigation there.

Speaker 3

And you know, just just kind of for a frame of reference, uh, there's been larger deficits and distressed years, like in 2009,. Coming out of the great financial crisis, there was a deficit of about 10%. Come out of COVID, there was a deficit of 15%. Last year was 6.7. The CBO, or Congressional Budget Office, which is an unaffiliated third party that provides economic data to Congress, they're anticipating a deficit on average of 6.3% over the next 30 years. But yes, as you said, the deficits are financed by borrowing, issuing more treasury securities, and that is added to the national debt. So obviously, you know, outside of the increase in debt, the issue is we have to pay interest on these debt obligations and you know right now we're at higher interest rates and that's more interest that is owed versus money that could be used to spur more economic growth, so that is an issue, but you know.

Speaker 3

So I think, obviously, where does this leave us? You know the administration has come out that they are from on the surface, taking this seriously, and you know I guess we have three and a half years to see what actually happens, but that they they do have a few arrows in their quiver that they're trying to, you know, mitigate this risk and you know I'll provide, kind're trying to, you know, mitigate this risk and you know I'll provide kind of the more. You know I'll say, optimistic perspective from their, like their, expectations and then a little bit more, you know, counter to that, with the CBO, cbos, estimates, and so you know the recent bill passage, the one big beautiful bill, kind of a mouthful to say, based on that, the administration expects about one point four trillion net and you know, and spending cuts that's going to be. You know the net is offset by a few expenditures.

Speaker 1

That's what the administration says.

Understanding the US Balance Sheet

Speaker 3

Third parties almost have the opposite of that, yeah, so the CBO is actually, they think it's going to be well, I guess, kind of jumping down a little bit. So, in total, the administration thinks it's going to add 3% to GDP growth annually. The CBO thinks it's going to be about half that, like 1.8%. But the administration believes this will also lead to about $760 billion in a reduction in the deficit. The CBO thinks that's not going to happen at all, they think, because, based on the tax cuts which there was the extension of the TCGA, the Tax Cuts and Jobs Act that really won't provide a tailwind necessarily, but I think it just gives more corporations and, you know, kind of more um transparency to them about like, yeah, hey, tax rates are going to remain at this level for foreseeable future, um, but there are some other um tax related matters where the should, you know, hopefully spur economic growth like with no tax on tips, no tax on overtime, et cetera.

Speaker 3

But the CBO thinks that the reduction in new tax policies, they think that the lost revenue from that is, you know, not lead to a deficit reduction basically. So they are more conservative in their guidance on that. But you know, real quickly, just I guess a few more other kind of arrows and the quiver of the administration is they they think you know revenues will help offset the deficit. They're expecting 2.8 trillion in the next 10 years. Cbo is no comment on that Discretionary spending. They think you know, you know the bill, the recent bill passage, um, and some other reductions there and doge department of government efficiency, um, additional kind of uh review might lead to about seven trillion in deficit reduction. Cbo thinks about one point or one trillion there. And I think one other thing is I've really seen a lot of news about this lately but the? Um, the Trump gold cards which kind of like vanished from the news I feel like. But the last thing I saw is there was about 70,000 applicants but there's 5 million cards. I think is about 350 billion.

Speaker 1

So hopefully that will help 70,000 applicants are willing to pay $5 million for us Citizenship. That's the latest statistic I've seen.

Speaker 3

I did not know that, yeah, so I guess we'll see where that lands, but you know, if they are able to use that money responsibly and help, you know, drag that toward the deficit, that could be another you know way that we could help reduce this. Yeah, okay.

Speaker 1

How does that work real quickly before we transition here how does?

Speaker 3

how? How does that work real quickly before we transition here, how does that affect you in managing portfolios when you see all this building, because you said it's a five to 10 year problem, but at some point that gets closer right and the budget and as long as I guess, more so on fixed income side, obviously interest rates are kind of indicating that. So just being well-positioned to not have too much exposure on the longer side, longer duration and fixed income, equity side corporations could be hurt a little bit from basically just like the spur of, you know, not as much growth incentives here in the US domestically. So it's just something you know. As far as like adjusting allocations from international to domestic, you know, but again, right now I still believe that domestic is better positioned in the long term to outperform international markets for various reasons. But again it's just something to kind of you know it's always evolving and changing. You just got to kind of have to keep up to date on it.

Speaker 1

So there's no emergency now. No, you have to have your pulse on what's happening. Yeah, exactly.

Speaker 3

And we'll see the next three and a half years or so how these policies play out.

Speaker 1

All right, thank you very much, andrew. Welcome to OISE Retirement Podcast. Are you curious about how America's national debt works? I'm Casey Smith. Today I'm joined with Shauna Theriault. Each week, we bring you practical advice on retirement, investing and planning for your financial future. Don't forget to subscribe to our podcast wherever you're listening. Let's get started. Hey, shauna. Hi have you recovered from our outing?

Speaker 5

Yes, I didn't really work that hard.

Speaker 1

We get forced into team-.

Speaker 5

Team building. It's not forced Team building. It's good for the company and the teammates. Our marketing manager here.

Speaker 1

Hadley is in charge of finding something that we can all do together. We went I don't even call it bowling. It was like it's down at the Brave Stadium. It's a punch bowl social and they have some bowling lanes, but the pins are held by string. Okay, it's not like if you went to bowling alley in your house. This is like.

Speaker 5

I feel like this is what it would look like, but I mean it's, it's a nice hangout place but, it's fun to hang out, but we we you know, Sean was like throwing down strikes over here, so it was cause the strings it was messing me up. Yeah, the strings.

Speaker 1

It was definitely the strings.

Speaker 5

No, it was bad.

Speaker 1

So yeah, people would people would clearly bowl a strike or get a spare and the machine wouldn't count it.

Speaker 5

I wanted to make you feel good. Is that what it is? So I didn't want to overshadow your high score.

Speaker 1

I think I did okay. Considering our lane would never give you a strike or a spare.

Speaker 5

That's the only reason we did so bad. It was because of that.

Speaker 1

It was the technology. The max you could get at any bowl was nine.

Speaker 5

I know, and one time I actually did hit nine pins down and it only did eight.

Speaker 1

It only did eight. Yeah, exactly, it just attracted one. That was the one time I hit nine pins. It was funny, as we've done this before. It was like two years ago. We went to the exact same location and the exact same problem happened, and so when Hadley asked me, should we go back? And I was like, well, yeah, that sounds fine. I'm sure they fixed the machines by now.

Speaker 5

It's been two years, no, no that's how they make it fair for everybody.

Speaker 1

They just everything doesn't work they just give you random numbers.

Speaker 5

Just give you random numbers so that way no one looks bad, it's just fun, it's pretty bad I guess they can't have bowling leagues there though no, no, definitely not.

Speaker 1

Oh my gosh no like You'd have people swinging punches at each other.

Speaker 5

Well then, maybe that's why it's called punch bowl.

Speaker 1

Ah ta-ching, but this is not a laughing matter.

Speaker 5

This is not a laughing matter. The deficit is not.

Speaker 1

I feel like we should have a bugle playing or something I know If our client's balance sheet looked like this.

Speaker 5

We would be very concerned. We would say you cannot retire.

Speaker 1

Yeah, I mean I was just talking to Andrew before you came on and and that's kind of what I opened it up with was individuals. If you ran your household like this I mean every household has some sort of debt but if you have a ton of debt, as long as you have the income to support it, then you're going to be okay. You just got to do some things differently, right when where we ran it like the government did it, I mean, we've had a deficit.

Speaker 1

Oh, there's a chart here 24 years Sorry if you're having to hear my pages ruffle here, but yeah, 24 years. We had a $130 billion surplus in 2001. And every year since then, uh, it's, it's, it's all over the place. Every year since then, it's all over the place. Obviously, covid year was $3.13 trillion deficit.

Speaker 5

I mean they were outflowing a ton.

Speaker 1

Next year was a $2.77 trillion Cash flow that year, though 2009, 10, 11, really bad years, obviously. So, anyway, the deficit really converts into debt. And then how does that relate to us as investors? Right, so we, we, we carry one of the largest debts in the world. Uh, and what you know? What does that mean? What is does it? I mean, how does it affect us as as citizens, how does it affect us as investors? Um, you know, I I guess to be clear.

Speaker 1

Uh, you know, national debt is how much money the federal government owes to its creditors right so it's made up of of held debt. That's treasury bonds, securities sold to individuals, institutions, foreign governments, the Federal Reserve. Then there's intra-government holdings money that the government owes itself, mainly from borrowing from trust funds like Social Security and Medicare.

Budget Deficits and Financial Policy

Speaker 5

Well, and that's the questions we get all the time it's like okay, so they hear all this and you know get into the, you know hear these things and it's like what's going to happen to social security? That's the questions we get all the time.

Speaker 1

So how much do you think our debt is right now? Have you looked at it? Have you looked at?

Speaker 2

it, I have, oh, dang it Never mind.

Speaker 1

Well, ask the listeners how much debt do you think there is right now? Guess, a number right now is $36.7 trillion in rapidly rising that's 121% 123% of the gross domestic product of the country, which is insane. Yeah, that's kind of like your debt to income ratio. Exactly, exactly, so would you, if you walked into the bank with with 123% debt to income ratio, would you get a loan?

Speaker 5

for a mortgage? Of course not. They even give you a loan. No, your credit score would be bad.

Speaker 1

Zero.

Speaker 5

Negative, negative, exactly. It would not be good at all, definitely. Well, and I guess you know that's where, how. How does it affect Americans? How does it affect everyone? I mean, that's that's where. How does it affect Americans? How does it affect everyone? I mean, that's that's the question. And it's like the the. They keep kicking the can. There's a bunch of debt that is coming, there's maturing this year and you know that means they're going to have to refinance it. If rates are higher, it's going to be at a higher rate. So you know.

Speaker 1

And that's why you're seeing Trump really banter with the Fed chair because he even a rate was. If the rate drops by one percent, how much in billions of dollars interest payments that saves us?

Speaker 5

Right, exactly.

Speaker 1

It's a big deal.

Speaker 5

It is a big deal. It is a big deal because they have to be able to and I really think you know we've talked about that for years, you know with interest rates being as low as they were after 08 and 09. They've obviously crept back up and they had to come back up, but that's been the biggest thing. It's like because of the debt. They kept it almost artificially low for so long, which hurt pensions, other things that could only be in, like fixed income, insurance companies, all those things, individuals that were retired, you know all those things where we liked the mortgage rates but it it kept it artificially low for a really long time for multiple reasons, but one of the things that was always talked about was because of the debt and us having to service the debt as a nation.

Speaker 1

Yeah.

Speaker 5

So now things are going to be maturing this year and they're faced with it again because the the payments are going to go up so much.

Speaker 1

Yeah, and how do we even get here? Obviously, we see the deficits every year, but what is the deficit on? You know, a lot of it is 2008. There's a lot of financial crisis?

Speaker 5

Oh, of course.

Speaker 1

A lot of stimulus during that time period.

Speaker 5

We talked about covid already.

Speaker 1

Yeah um, but you also have in time up programs which social security, medicare, medicaid. Those are all big expenses they are uh, not that anyone should be saying get rid of those, necessarily.

Speaker 5

Well, in all fairness, it's a big expenses but people have paid into those things well, as far as medicare, obviously, social security, right, but people are living longer, um, you know, than they were in years past and fluctuations in the workforce, corporate corporate tax cuts being slashed, uh back in 2017 that that adds to the deficit.

Speaker 1

Although I will, I will. I would argue that the big corporations, people they don't pay, corporate corporations don't pay their fair share.

Speaker 5

You're talking about C-Corps.

Speaker 1

Like, big like.

Speaker 5

Coca-Cola's, the GE's right yeah.

Speaker 1

They don't pay as much taxes as you think because they have the resources and land credits and things like that. The people who pay the business taxes are people like me.

Speaker 5

My small business owners. Yeah, paying my fair share buddy. Right, exactly.

Speaker 1

Exactly. But yeah, the tax policy changes, you know. That's another thing too Andrew mentioned earlier. Let's talk about the balance sheet of the country. People don't think like that. People don't think in terms of assets and liabilities Like you most households you say what? Like most households, you say what is your net worth? And a lot of people got net worth Right. But he said he was stating that there's a negative net worth to the country. I disagree with that. I think if you counted the natural resources of this country as an asset, as an asset.

Speaker 1

We have more than enough resources that cover debts. We'd have to move a lot of protections off those assets to pay for them. Yeah, but I would like. I could be totally wrong. I don't have any data to support that, but I think when accounting you count things a little differently than what sometimes what? Reality is Right, so we're probably getting the liabilities correct. That's very easy to see, but the actual assets, but the actual assets would be very different ways to account that. But that's just my opinion.

Speaker 5

I mean, really, if you think about it, is that something that they would tap or could tap if there were, and there is and that and that's. I think you know most of us. I don't want to say we don't worry. It's not that we don't worry, but you know the power of taxation, they've always had the power of taxation. You know which hurts the economy further, but that's where it's like well, they could always tax more or change you know, how they're doing things and also security thing.

Speaker 5

That's like such a huge subject. You know people are living longer, but people are working longer, so they're paying longer in right, Correct. So sometimes that doesn't make sense to me either. And there's more people where I know. There's more people collecting and there's people living longer, but there's also more people working and they're working longer than they used to.

Speaker 1

I feel we're working longer, but there's so many baby boomers and we just haven't, we haven't had as many birth. The birth rates really dropped, right, true, so I think that's why we're seeing the difference there. Um, you know, we right now we spend a trillion dollars annually on interest. So, if you think, if you, if you're working someone's personal life, one of the easiest ways I show them why paying off debt so important is, hey, if you're paying $5,000 and all your debts to total not including maybe your house, right?

Speaker 1

We eliminate this. That frees up $5,000 a month in cashflow.

Speaker 5

Right, and then you can invest or spend or yeah exactly so you think about the U?

Speaker 1

S government being debt free is probably not realistic, but if we're spending a trillion dollars annually on interest, just wasted money, yeah, yeah. Actually no one remembers this during the first Trump administration, when he was being impeached the first time um his administration tried to push for refinance, refinancing all us debts at that time, cause, remember, interest rates are really really low because of COVID.

Speaker 2

Right.

Speaker 1

So the U? S government would have had nearly zero percent interest and he was trying to do a hundred million or a hundred year bond and imagine if that had actually gone through. They were so focused on impeaching him that people just they, some people thought he'd be leaving office soon, which yeah, uh, it's kind of hard for that to happen. No, no matter who's being impeached, based on history, right.

Speaker 1

Right but if that could have happened, it would be such a different position right now. You know what are the, what are the risks if the, if we keep doing this Andrew didn't quite get to these, but this is a things we've talked about in the past. If we can't service, if the U? S government can't service as a debt, you're going to end up having higher interest rates. Uh, you're going to have there's this phenomenal crowding out that that sort of government borrowing money may limit private investment.

Speaker 1

So there's just so much government money out there that that people can get guaranteed rate of return on at a higher interest rate, that then they won't invest as much in the private sector, which would which would hurt the economy Obviously reduce fiscal flexibility. So imagine if you had a COVID. You dealt with all that and then you had the financial crisis within two years later like that that would be pretty detrimental to the economy.

Speaker 1

And then, obviously, inflation. If you, if you, you print too much debt you're going to end up with, you're going to end up with too much uh you have like a brazil or a venezuela situation, right, with rapid inflation, nothing. It may look what happened in 21 and 22 like it was, like it was no big deal.

Can America Default on Debt?

Speaker 4

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Speaker 1

So what if the government can't pay its debt? Can the government even default on its debt? So, technically, as the US government, it's a sovereign currency issuer, so it creates its own currency. It'd be really hard for it to. It can theoretically default, but it'd be really hard for it to default on its own debt. But you and I have we pay in dollars for a thing. We don't change the value of the dollar. We can't change the value of the dollar for ourselves. If you're in Europe and you're Greece or you're Germany two polar sides of the economic spectrum in Europe. Greece wants a really weak euro to help pay its debt. Germany needs a really strong euro to support its economy. So so in that case, neither one controls the euro. But being that, we can control our own currency. Even the chinese currency is backed by us currency in the end.

Speaker 1

So, uh, it makes it really hard. Uh, it makes it really hard to default Now. You do have some roadblocks, though, so you have a legal debt ceiling, and that's become very politicized over the years. It's happened since the beginning of time. You need to borrow more money. Congress has to approve borrowing more money, right, right.

Speaker 5

But then they just raise it, they keep raising it.

Speaker 1

Yes, you could have political gridlock over that, but in the end, they shut down the government for a few weeks, but they end up paying their bills right. Right, we talked about a second ago inflation risk could be a problem, but I think probably the biggest one is confidence as a reserve currency status. Don't pay our bills on time and we create all this, all this political mess around it. Then you're asking for another currency potentially to come in, to be the world world currency. Um, so obviously, if you had a technical default, so you miss interest payments, the government shuts down, your credit gets downgraded.

Speaker 1

This has all happened already right Uh you get stock market volatility around, higher borrowing costs. That all happens in the short term. Long-term solutions to all this. So how do we fix some of this? You have to grow the economy faster than debt. So if we relate that to personal finance, you would have to grow your income faster than than the interest payments that you that you're accruing. So you, you grow yourself out of the problem, which that's why every political cycle, we're talking about growing the economy.

Speaker 2

How do we grow the economy?

Speaker 1

Right. That's that's, that's how you make it. If you had, if you had $5 in revenue, but you had $2 going out in interest payments, but now you can have $10 in revenue and maybe only three or $4 going to interest payments, then you're in a better position, right? So that's what all that's about Reduce spending. That's kind of a big deal. I don't see that happening.

Speaker 5

No.

Speaker 1

I mean we just did it, but then we passed another bill that potentially could add to that.

Speaker 1

We could raise taxes you know consumption tax, I mean, that's been tossed around. Yeah yeah, you could inflate the debt away. So basically allow modest inflation to reduce the real burden of the debt. But if you lose, obviously you lose purchasing power at the same time. So that doesn't really help lower income citizens or hurts the poor people. Basically Right. And we could also do debt restructuring. That would be detrimental to the US.

Speaker 1

Other countries Italy did that during the financial crisis, Greece did that. If the US did that, you'd almost think you would definitely lose your world domination as far as currency goes. So I kind of went down another rabbit hole from that and I said well, if we can just print more money to cover what this costs, and as long as we print it responsibly, does it even matter? Like, what is that? Maybe there's none of this even matters if we just just keep kicking the can down the road and as long as we do it in a conservative manner, then it doesn't matter. So that's when I just stumbled upon this. That's when I stumbled upon modern monetary theory, MMT.

Speaker 5

Have you heard of this? I have heard of that. I don't know the details of it, but I have heard it.

Solutions and Modern Monetary Theory

Speaker 1

So I had not heard of it but, like I said, I went down this rabbit hole. Not heard of it, but I, like I said, I went down this rabbit hole. So modern monetary theory says that deficits don't matter as long as inflation is under control.

Speaker 1

So government should spend to achieve full employment and use taxes to control inflation, but not to fund spending. That's the whole theory behind it mainstream economists. Like all of our former Fed chairs. They largely reject modern monetary theory as a real policy. But there are people out there in the government that believe that you can just keep doing everything you want to do.

Speaker 1

And as long as you don't break it with inflation, then you're going to be okay, and I would say that okay. Well, maybe Fed chairs don't necessarily agree with that, but Congress sure does, because I'm looking at the U S fiscal deficit from 2001 to 2025. And that's exactly what's happening, right. That's exactly what's happening Right. So I don't know. I mean, is there really a problem? I mean, the short term, yes, our short term, no, because the government's not going to go broke overnight. Um, we could create serious inflation. Um, you could have maybe you don't have a technical bankruptcy, but you could still have tons of money to pay interest. Uh, being an issue, I think really weak economic growth is a problem and if you have a lot of inflation, you're going to have social instability. So you think, you know, during COVID, I saw firsthand the haves and the haves not. I saw it get spread really wide really fast, and that's exactly what would happen if you're not handling your monetary policy correctly.

Speaker 1

It would look like this your middle class somewhere along the way would get split and some people families are going to get way worse. And then some families would move up with the higher wage earners.

Speaker 5

This is so interesting because this is like right after the dot coms that all of this started. Yeah, dot coms in all of this started. Yeah, well, there was, there were deficits, though, during the Clinton administration.

Speaker 1

But but what people don't realize is Republicans and Democrats at the time worked really really hard to balance a budget. They worked together to balance a budget. They did a lot. They sound a lot like how Trump sounded they they stood out there in the white house lawn. They had there's videos. You can find this on YouTube, but there's really it's. The TVs have come a long way in 25 years, but it's kind of grainy coverage. You know cause? He had two TVs back then, but but they had Bill Clinton and Al Gore and he had, I think, newt gingrich are all standing out there with their, with these folders. All this is wasteful programs. They're like throwing away folders and stuff. Um, so there was a time period when both parties understood the importance of this and somewhere along the way, uh, it's gotten. It's gotten forgotten, yeah, so I don't know. I mean I think the sense that at least I mean there's other ways they can create tax, though.

Speaker 5

Because I really think, like when you're looking at this chart, if you're looking at this online, 08 and 09, that is the financial crisis. And then what did they do? They said, okay, we're going to lift the income restriction of people over 100,000. You can now convert to Roths. And a bunch of people did it because and they let you spread it over two years Boom.

Speaker 5

That just created taxation and created income during that times when that deficit was higher. I don't know if it's LinkedIn that's the reason, but it created income. But then also, what did they do during um? They changed required minimum distributions coming out night to 2019, come, you know, right before COVID. So they changed that, they retroacted that and so they made it so now you could not spread distributions over your lifetime.

Speaker 1

You had to take it within 10 years.

Speaker 5

Well, that generates more income right there.

Speaker 1

Yeah.

Speaker 5

So they come up with and for a little while they talked about anybody with more than 5 million in any retirement account is going to have to distribute that, and I think it was 5 million. I'm pretty sure about that.

Speaker 1

Yeah.

Speaker 5

They were going to have to distribute it out of the account and pay tax on it and lower the balances, no matter where you were working.

Speaker 1

That went away. That was it. It never went. They were targeting one person with that. There is. There is a.

Speaker 5

But there's still fancy ways that you create taxes without just saying we're going to raise the tax rates on everybody. You can come up with things like that that are still increasing taxes during those years, but it's you know, it's not affecting everyone.

Speaker 1

Correct.

Speaker 5

Or it's optional to take advantage of something.

Speaker 1

Yeah, or the Roth in general, everybody's paying more tax.

Speaker 5

if you're doing a Roth, I mean. I feel like they come up with these things, but that's not going to be trillions of dollars worth. No, it's not.

Speaker 1

It would take a a, it would take massive change in order to do that fair. I that's partially where it's very controversial. But tariffs, um, obviously usa going away and all the crazy things right about those articles.

Speaker 1

These are all things that they're trying to do. I was hoping that the one big, beautiful bill was going to even further that along. I just don't see a whole lot of rhetoric out of the administration right now that says anything about we're going to balance this budget. This is why thanks, because the reality is that in the next five or 10 years it doesn't really matter that much to us as individuals.

Personal Financial Implications

Speaker 1

It's a long-term problem, but it takes short-term action to solve the long-term problem. When the big problem gets here in 10, 15 years, whenever it hits, it's gonna be um yeah, there's nothing you're gonna be able to do about it. That time it'll be too bad. It'll just be too bad of a problem. Um, I I I'm not a negative person, I'm a positive person. I think that efficiencies through ai um would allow companies to be more profitable, which creates more tax. I think there's a lot of things with innovation. So if you look at how we've innovated, tech-wise, we are accelerating at a faster pace than ever. So I feel that, just like when the internet came on right.

Speaker 1

And we got rid of dumb terminals. We have personal computers, and personal computers got faster and more efficient.

Speaker 5

I think I was 18 back then.

Speaker 1

You and I both would have been that that whole age of of improved um efficiencies would allow us to be able to tax more down the road Cause it'd be more revenue.

Speaker 5

Yeah.

Speaker 1

So I I'm not in the camp of this is doomsday.

Speaker 1

I am in the camp that if something doesn't change, then we are in trouble, but I feel like there's always a catalyst for change, and that's one thing. That's great about America is that we can always work hard to solve problems, despite the politicians. Uh, but I think as a individual person, what can you do? You can clean up your own balance sheet. It's important that you clean your own balance sheet up because, even if the government screws up and things, the world changes. If you don't owe money, if you have a paid off house, if you have no credit cards if you don't have a car loan if you don't have um business

Speaker 1

loans. All these things will um allow you to be in a stronger position to maybe even take advantage of a bad situation as a business owner or even as an individual person. So those are all things that most of us don't have, but these are things that we can strive toward over time. And then, you know, some people get really worked over over this, and I always say the same thing that I say to my teenage daughter don't let anybody else steal your joy. So don't get so worked up over this. And I always say the same thing that I say to my teenage daughter don't let anybody else steal your joy. So don't get so wrapped up in this that you get worked up and angry about it. But certainly make sure your own balance sheet is cleared up, because unfortunately, you're not going to be able to control Congress. You definitely can't control a US president not this president and you're not going to be able to um control those around you.

Speaker 1

But you can control your your own house and how you handle things, um, but I think that I think that um making really bad, you can, you could potentially make really bad decisions for yourself based off of this information, not understanding how it doesn't actually affect you as much as you think it does in the short term.

Speaker 5

Yeah, yeah, great point.

Speaker 1

Anything else to add?

Speaker 5

No, I think that's great.

Speaker 1

All right. Well, thanks for listening, and if you like to learn more about Wiser Wealth Management or speak to one of our financial advisors, you can do so by going to wiserinvestorcom or click on the show notes below, and we look forward to seeing you guys next week.

Speaker 2

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review.

Speaker 2

If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out. This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. Weiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guests may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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Casey Smith

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