A couple weeks back the US government raised their debt ceiling (the amount of debt they’re allowed to have) again.
Had they not raised the debt ceiling, the US government would have become insolvent (insolvent means you’re not bankrupt yet, but will be soon).
Raising the debt ceiling wasn’t a surprise to anyone who follows this – they do this every year and their debt has been going up since the Civil War.
It now stands at $31 trillion.
After a while trillions just become a bunch of millions and billions that don’t mean anything, so let’s put that 31 trillion into perspective:
A million seconds is 11 days.
31 trillion seconds is 98,300 years.
So basically – $31 trillion is a lot of money.
But who cares about that – none of us can control what the White House does, so there’s no point complaining about how much debt they’re in.
What we should focus on is how to best position ourselves, and to figure that out, we need to understand how this debt works, and how it might affect us.
Let’s re-imagine the US government as a regular household, and they’ve taken on $100k in debt on their credit cards.
The first and most obvious point is – eventually this money has to be paid back.
It’s debt, after all.
Secondly, until they pay it back, they’re going to rack up interest, so the debt will keep getting bigger.
How do they pay it back?
They go and earn money somehow (like getting a job), and then use that money to pay it back.
Now they also have a second option to get rid of this debt:
They can go bankrupt.
If they declare bankruptcy, the debt disappears.
The obvious downside to this is – they look like dummies, ruin their reputation, and lose all their stuff.
So once again, the options are:
- Earn some money and pay back the debt so it goes away, or;
- Declare bankruptcy so the debt goes away
These are indeed two options the US government has available.
However, neither is realistic.
They can try and earn more money (by raising taxes) to pay back the debt, but in reality this option is impossible – raising taxes to bring in $31 trillion is like trying to pay off a $2 million mortgage with a lemonade stand.
The second option is to simply default and let the country collapse.
Obviously, they’ll never do this voluntarily.
So options one and two are out.
But there’s also a third option.
Remember – this is the US government, not a regular Mom and Dad household.
That means they have a few more “tricks” available to them that we don’t.
You probably heard your parents tell you when you were a kid – “money doesn’t grow on trees”.
The funny thing is, for the US government it kinda does.
At any time, the Fed can simply print money.
Technically, it could just print $31 trillion tomorrow, pay off the debt and, surprise!
The country would suddenly be debt free.
So let’s recap.
The US government has been borrowing billions (trillions) of money every year to pay for infrastructure, welfare, schools, staff, security guards for the White House, wars like Vietnam, WW2 and Ukraine, military bases all over the world, the CIA, blah blah blah.
Basically, they have a lot of stuff they need to pay for each year, and taxes aren’t enough to pay for it.
Eventually, this debt has to be settled.
They have three options:
- Default on it (extremely unlikely)
- Earn more money to pay for it (impossible)
- Print more money to pay for it
Obviously, their best (or only) available option here is to print.
In economics, we call this “monetizing the debt“.
Now since you or I can’t stop the government from printing money, we should instead try to understand what’s going to happen when they do.
The simple answer – inflation.
I’ve already covered in detail how money printing causes inflation and how it impacts us in this article, but let’s recap.
Printing money means there is more money in circulation.
This makes dollars less scarce.
When things become less scarce, they lose value.
When dollars lose value, it means prices go up.
When prices go up, it means your dollars buy less.
In other words, your money becomes less valuable the more the government prints.
If they print too much, that money will eventually become worthless.
This is not a new phenomenon, we’ve already seen it in countless countries throughout history.
In fact, we’re seeing it happening before our eyes right now in Turkey, Argentina and Venezuela.
Now there is some relatively good news – New Zealand is in slightly better shape.
Our government’s debt is around $100 billion, and increases by around $3 billion a year.
But that doesn’t change the problem.
It’s the same problem, just smaller.
So how do we position ourselves?
The answer is the same as I’ve given many times before:
1. Own assets and own businesses.
Position yourself as a business owner.
The easiest way to do this is to buy stocks.
This means every time the government prints money it will benefit you, because that money will eventually flow to you.
2. Own assets that don’t experience inflation
The reason inflation is a problem is because money can be printed.
Own assets that can’t be printed, and are not tied to any one government.
If your assets aren’t issued by the government, it doesn’t matter how much debt they have, because the solvency of the government no longer affects you.
The best assets we know of that can’t be printed are:
Real estate is asterisked because even though it can’t be printed, it is tied to a single country/government, and in the event of collapse, you can’t take it with you.
By owning the right assets you can safeguard yourself from government debt, money printing, and all the problems that come with it.
Play your cards right, you not only protect yourself, but you can actually benefit from it too.
If you would like to learn how to start investing in these assets, I have free guides available for all of them on my start page!