Long-Term Impact to Investors

Find out why investors should care about the debt and get ideas to help position your portfolio for potential risks.

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Looking Ahead at Potential Investor Impacts

It is likely that the United States can support a meaningfully higher debt level than today given the country’s dominant global economic position and the dollar’s stance as the world’s reserve currency. That being said, projected increases in deficits and the debt remain troubling. Keep in mind it is impossible to predict exactly how much federal debt the country could bear before investors lose faith in the government’s ability or willingness to pay, potentially pushing borrowing costs higher and the nation into a fiscal crisis.

Even if a crisis is not imminent, the consequences of a significant national debt are likely to be real and far-reaching for citizens and investors. Before any true financial crisis occurs, investors should watch for potential effects of a growing debt:

Potential warning signs of a growing debt problem

Addressing the Challenges

To put the federal budget on a sustainable long-term path, lawmakers would have to make major changes to tax policies, spending policies, or both. However, when it comes to these issues, Congress typically finds itself stuck between a rock and a hard place.

On the one hand, these are politically challenging positions to advocate for in legislation given a politician’s incentive to be popular and electable during the next election cycle. On the other, the sooner these issues are addressed, the less drastic the size of such changes would be required. The ultimate size and scope of the changes required would depend on the amount of federal debt that lawmakers consider appropriate. Given the choice between taking potentially unpopular action and “kicking the can down the road,” Congress has generally opted for the latter.

When, if ever, our lawmakers do act, there are several schools of thought, overviewed below, for them to debate regarding debt management and appropriate fiscal policies.

What can be done?
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