Jon Gay

TRANSCRIPT

Jag: Welcome back into the Art of Wealth Unbroken podcast. We’re here each and every week to provide you with investment and economic insights. We’re here to discuss trends and developments in the field of finance and retirement, creating certainty in uncertain times. These discussions can help you make better informed decisions so you can make better financial choices with the wealth you have built and are continuing to grow.

Our goal is to help you live the lifestyle you’ve imagined for retirement. Stacey Andres is a registered financial consultant and Michael Wallei joins me today, a certified financial planner. I am Jon “JAG Gay. And for our topic today, Mike we’re talking, what is national debt? 

Michael: Hello JAG. Well, the United States reminds me of Lloyd Dobler. Does anyone remember the famous line from the movie “Say Anything?” It came out in about 1989 and had John Cusack as the actor in it. And it was a favorite line of mine. I thought it was hilarious when I heard it, but it reminds me so much of the United States today.

And. Lloyd.. He’s out on a date, he’s visiting the dad and we’ve all been in that situation before JAG. We’re sitting across from the dad. We’re going to take the daughter out for the first date. And the dad says “What’s your ambitions, what’s your future?” And the quote was, ” Well, I don’t want to sell anything bought or processed, or buy anything sold or processed or process anything sold, bought, or processed or repair anything sold bought or processed, you know? As a career, I don’t want to do that .To me, that is our government. They don’t manufacture goods. They don’t distribute goods. They don’t fill shelves with goods. They take in taxes from corporations and individuals and sell debt against future taxes. And if you go to the government accounting office website, you can go to the GAO report and you’ll see on their balance sheet, a list of ways that the American people, the citizens and our corporations are being taxed by our government.

Jag: That is quite the analogy and iconic movie that I’m sure many of our listeners do indeed remember .It sounds like a pretty simple but complex approach.

Michael: Well, let’s take a stroll down history lane, just so that all the followers on the show understand. Where did we get to in having taxes? The country wasn’t created immediately having taxes. We actually fought a battle to get us out of taxes. So how did we get back to taxation? in 1913 as a result of a declining tariff revenue sources, that political push was created in this country that we would shift tax burdens onto the wealthy.

And if we think about it in that time of our country you really had two classes of people. You had the very wealthy, and then you had everybody else that was working for the wealthy, because they were big landowners and they were producing goods, whether it be cotton or tobacco or some kind of agriculture.

And we were taking those products and shipping them overseas. So we were exporting and then we were getting some imports back. And so we created some tariffs. We had taxes on that money, and it was enough to be able to run the federal government. Well, as we started reducing down that, we said we still need to tax individuals.

We all, we still need taxes to come in. And so we ratified the 16th amendment, which would allow federal taxes to be applied to individuals’ revenue as well as businesses. Since then, JAG, our government has created an insatiable appetite for spending other people’s money. And that’s through taxation or creative taxation, such as the federal, the state, the local.

I know you grew up in Boston and the SALT taxes that we hear about from the Northeast quite often. There’s a way of creating more and more ability to take a portion of someone else’s revenue, bring it into the federal government to meet their spending.

Jag: It’s funny. I thought when I was a W2 employee that I had a lot of taxes and then I became a business owner and that was a whole nother ball of wax. You’re talking payroll estate, gift taxes, social security tax. Just to name a few, there’s tons more than I’m not even mentioning.

Michael: Yeah, and one would think, but there is also the national debt and the national debt is a completely different tax. So if today we were just looking at the numbers. In 2019 JAG, the national debt was $22.5 trillion. Today if the followers go out there and they looked at the U S debt clock that is now pushing $30.5 trillion.

In 2019, it was 106% of our GDP was the national debt. Today is 143%. So if we just do a little macro micro balance here, and we think of it from a macro level is what the government is, what I just shared. Now, if we were on a micro level and anybody that’s listening today, if your spedning habits each year was 143% of 100% of your revenue.

What would you call that?

Jag: I’d call that a spending problem.

Michael: And bankruptcy.

Jag: Yes.

Michael: So, so when you look at it and you think about somebody that lives in a neighborhood, if they had 143% of their debt against their a hundred percent of their revenue. That’s equivalent of being able to go to each of your neighbors in your neighborhood and say, Hey, I need you to give me more of your money so that I can meet my spending.

Nobody’s going to do that. That’s a micro level and it shouldn’t be being done at the federal level as well. So what the government has done is they said we’ve got a greater spending habit than what we do in actual revenue and all those different taxes, Jag, that you just mentioned. So what they’re doing is saying, “How can we lever future taxation?” And that’s what the national debt is. That’s leveraging that. Because what they’re saying is if we take bonds and we will issue out bonds to cover that amount of debt, we can get more of that money coming in immediately to take care of today’s need, but we are exasperating a huge problem in the future.

Not just future generations, two and three, I’m not talking about grandchildren. Great grandchildren. Great great grandchildren. I’m talking about today’s citizens going into it. In 2019, when we look at what was the debt per citizen. It was $68,400. A baby being born right this second has a debt. They’re coming into the world with a debt of $91,623.

Jag: That’s quite a jump. Oof.

Michael: When you bought your home, you didn’t even include your national debt as a part of your debt line. Nobody would lend you money for that today. Every taxpayer has a burden of $242,000 of debt. So if a married couple today has $500,000 of debt that the federal government has ran up on their behalf, but they’re now obligated to pay back.

So when we’re looking at the federal government, just like a corporation that’s needing to raise capital for expenditures. The U S government is spending a greater amount of revenue. So they’re creating bonds and pushing those back out to the citizens or external, because we have a lot of foreign countries that are buying those treasuries today.

But as we’ve talked about JAG, over the last few shows, and we’re talking about raising interest rates. This is a huge problem in this country because interest rates can only go up to a certain amount because of the debt liability that we have, because we would not be able to service that debt.

Imagine $30.5 trillion. If interest rates went up to 10% on those. That would be the largest budget item the U S would have. And that would be servicing our debt. That’s equivalent to an individual that has a 50% interest rate on a credit card and they have a mortgage and a car payment, and they got grocery bills and trying to send kids to school.

What if the biggest liability you had in your household was paying the interest, not the principal, just the interest on a credit card.

Jag: Scary thought right there.

Michael: That’s an imbalance.

Jag: Yeah. And when you have that imbalance, you either gotta cut spending or bring in more revenue. And it sounds like that the latter is what’s happening.

Michael: It is. So when you look at that we’ve either got to do three things. Either we’ve got to, as you stated, we’ve got to increase our labor force. We need to broaden our labor force, put more people back to work. So there’s more contribution going. Or we’re going to see the tax tables in this country changing and going up so that there’s more taxation being taken in per tax payer.

Or the third thing is we’ve got to get a balance between our export and importing. And remember if we go back to what we were saying that drove the problem in the first place was because of tariffs. We’ve got to get back to a point where the us is pushing out more goods than they’re bringing in. And we’re seeing that in other countries too, JAG. 

As a sidebar, isn’t that exactly what Russia is saying today and why they’re invading the Ukraine? And they’re looking to get more importing or more of their export into what’s being imported. Every country is facing this debt problem because we have overspent for many years, and now we’re trying to get back in.

Jag: So with that said, Mike, what happens if our employment numbers drop or say a pandemic hits and revenue streams are interrupted? Then we could be in real trouble.

Michael: Well, therein lies the problem. Taxation on those that are still working is increased or a debt ceiling is increased. And we keep seeing that .I don’t care who’s in the White House. I don’t care who’s running Congress. We see this year after year that our spending gets to a point and then everybody comes together.

They vote and we raise our debt ceiling. And all we’re doing is raising the debt liability, on the future retirees of this country and the future generations.

Jag: I remember when I was a younger and single and did not have as much money. And I was spending a lot of money on my credit card. What happened if I got near the limit? They said, oh, don’t worry about it. We’ll just raise your limit.

Michael: It is the same idea, but the problem, it, wasn’t a good idea for you as an individual. And it’s certainly not a good idea for the American people, because at some point we’re going to run into this. And we look at the four main core areas. The United States has Medicare, $1.3 trillion of liability annually. Social security, $1.1 trillion.

Defense budget, $727 billion. Right now our debt liability is at $436 billion a year is what we’re spending. So I know these billions and trillions can get confusing to followers. So let me kind of put this in a perspective, using a little bit of geometry. If we took $100 bills and we laid a brand new , crisp, brand new, $100 bills, and we laid them flat one on top of each other. 36 inches tall is $1 million.

Jag: Okay. 

Michael: I’d like to have a yard stick of $100 bills.

Jag: Who wouldn’t? Yeah.

Michael: Now a billion dollars is take that to the height of the Sears Tower in Chicago.

Jag: Or whatever it’s called this week. 

Michael: Or whatever. And then you go to a trillion dollars is one thousand of those Sears towers on top of each other. So when you’re talking about $1 trillion, it is 1000 Sears Towers stacked one on top of each other. Just from 2019 to where we went to currently, we are at 8,000 Sears towers high of $100 bills of increased national debt.

Jag: That is quite an image and you’ve really put it in perspective for me. Cause it’s like you said, it’s hard to get your head around these abstract numbers, but when you actually think about a visual like that, wow.

Michael: Yeah, my wallet is only about a quarter of an inch deep and it doesn’t have hundred dollar bills in it.

Jag: Mine’s less than that, depending on the day of the month, 

Michael: Today, we’re seeing interest rates on the rise. Again, this exacerbates our obligation. So as interest rates on new bonds are sold the obligation to meet those interest payments,JAG, is a huge strain on the U S to be able to pay those US bond holders. And right now, 25% of our national debt is owned abroad.

China and Japan owns our national debt. For the U S citizens to actually pay off the national debt. It is the GDP of China, Japan, and India all together.

Jag: Wow. So just to recap here, Michael, what we’ve been talking about the last 15 minutes. Today’s national debt, $30.5 trillion. That averages out to, as you said earlier, $91,622 per citizen. So the key takeaway here, what do we do with this information and what should our listeners do with this?

Michael: Well, this is what you and I, and Stacey talk about every week. This is the importance of building a personal financial plan that begins with the end in mind. If we are not considering this looming debt, understanding the impacts upon us today, as well as in the future, then our probability of having a successful retirement is diminished. The InfoRight process that we have created takes a look at six different areas of concern that individuals should be considering your income.

What are the forms of income you have coming in? Are they taxable income or is it tax-free income? What is your investment strategy? Do you have a purpose? Are you aligning your exposure of your hard earned money, your assets to a plan that risk mitigates to give you the return you need, but does it give you an overexposure to taxation?

Are you taking advantage of this downturn in the market and looking at Roth conversions on some or a part of your taxable assets? Healthcare long term, as well as personal care, your charitable inclinations, your estate planning. A successful plan understands how each of these areas work together to mitigate your risk exposure, but also giving you the proper plan in place to get a successful retirement.

Jag: I know you and I are both big football fans and it’s a training camp season just about. So these kind of sound like a strong, offensive line designed to protect that quarterback. And that quarterback of course being your financial future. And I know you’re also offering the LifeArc plan to our listeners. If you want to check out this plan for free and get an idea of where you are with your money and your finances and take all that data into account, give us the information,phone number and all of that as we close out here.

Michael: Phone number is (855) 378-1806. Again,(855) 378-1806 and JAG, if you’ll give the website.

Jag: And the website is artofwealthunbroken.com. For everything we’ve talked about today and all the resources, artofwealthunbroken.com. Pleasure as always Mike we’ll talk next week.

Michael: Thanks Jag.