A Trillion Here, a Trillion There
By FirstWave Financial
Most of us have heard of the saying:
“A billion here, a billion there, and pretty soon you’re talking about real money.”
This statement has been attributed (some say misattributed) to Senate-House Republican Everett M. Dirksen. On March 8, 1962, he was speaking at a press conference stating that the favorite denomination for federal spending at the time was $1 billion; a billion here, a billion there. Everyone was talking as if a billion dollars was not a very large amount of money at all.
That was almost 60 years ago. Now we toss around $1 trillion in the same manner. Putting this into perspective, consider the following:
One million seconds take just over 11 days to pass
One billion seconds takes just under 32 years to pass
One trillion seconds takes over 31,000 years to pass
In March of this year, Congress passed the $2 trillion CARES Act. As of this writing, negotiations are underway for another round of federally provided pandemic relief that is projected to cost between $1 trillion and $3 trillion. As significant as these amounts are, they pale in size to some of the new ideas that are being considered by the American people and their representatives like Medicare for All ($40 trillion over 10 years) and the Green New Deal ($94 trillion over 10 years). The total US Federal budget in 2019 was $4 trillion. “A trillion here, a trillion there …”
The size of government and the need for it to spend so much money in so many ways is the subject of much debate. What is not subject to much debate is deficit spending; how to pay for the federal government becoming so large and getting larger. It seems that, whatever the side of the political aisle, the consensus opinion is that when there is not enough federal revenue to pay for anything and everything, we borrow it. We issue more Treasury notes and bonds and go deeper into debt. Accordingly, our U.S. cumulative national debt has grown from $5.7 trillion in 2000 to $22.7 trillion in 2019.
Deficit spending can have positive effects. In times of economic slowdown, it can be used to stimulate the economy. Once the economy is back on its feet, corporate profits and individual incomes rise as do the taxes collected by governments on this increased prosperity. This can create a budget surplus that can be used to pay off the debt that was incurred during the economic slowdown.
But in recent decades we have had periods of economic expansion and contraction, yet our deficit spending has continued year after year. No individual could remain solvent if they borrowed more and more money every year without a plan for paying it down. Economic scholars have long warned about the negative consequences of such behavior by us as a nation including higher interest rates because the government has taken such a large share of available funds, resulting in lower investment by the private sector, lower investment translates into lower output and lower economic growth.
A perplexing thing is that none of these negative predictions have happened, even though our cumulative debt has risen four-fold in the last twenty years. Interest rates are at an all-time low and have been for some time. Before the pandemic, we were experiencing historical Gross Domestic Product (GDP) and wage growth coupled with low unemployment and inflation. There does not appear to be negative consequences to our deficit spending and politicians of all stripes are acting accordingly.
Is there some tipping point where our national debt becomes a problem to the continued growth and prosperity of our county and us as individuals? The answer is intuitively yes, but when and in what manner is subject to speculation and conjecture. Many experts had predicted that we would start experiencing problems by now and they have been wrong.
So what are you supposed to do in this environment to grow, protect, and enjoy your wealth and thereby nurture your WealthConfidence?
- Diversify – The federal government implements many of its policy decisions through private companies. This era of increasing government spending will create economic winners and losers. Having your money broadly diversified will help protect against having too much of it concentrated in parts of the economy that may lose because of government decision making and help capture the performance in the parts of the economy that may benefit from those decisions.
- Allocate– Place a sufficient portion of your portfolio in lower-risk investments like cash and investment-grade bonds to weather economic storms that may be caused by a sudden change in government policy.
- Forecast – Consider a range of possible future investment returns and possible future inflation rates in your future wealth projection to help determine your range of possible financial outcomes. This can help improve your WealthConfidence to see that, even in a less than optimal situation, you may still be able to experience the financial future that you have in mind for yourself and your family.
Each of these strategies and more are utilized in your WealthPlan you have created with your WealthCoach team at FirstWave Financial. By continuing to implement, monitor, and update your WeatlhPlan you are moving forward to take advantage of whatever the future holds.
We are grateful for the relationship we have with you and appreciate the trust and respect that we share. Please feel welcome to contact us for any and all reasons as we get through this time together.
You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.