Congress recently approved a significant $150 billion boost in discretionary spending for 2018. This increase in defense spending, combined with recent tax cuts, is putting more pressure on the average taxpayer since these cuts are expected to reduce government revenue.
Despite this, the US dollar remains strong and continues to attract foreign investments. However, there’s concern that protectionist trade policies, which align with President Trump’s campaign promises, could negatively impact the US credit outlook. By 2017, the US had a debt-to-GDP ratio of 77%, with a 3.4% GDP deficit posing a serious concern.
THE TRICKLE-DOWN EFFECT: HOW NATIONAL DEBT AFFECTS THE AVERAGE TAXPAYER
The US national debt is alarmingly high at $20.924 trillion, translating to $63,925 per citizen, or $172,669 per taxpayer. With federal tax revenue standing at $3.368 trillion, or $10,292 per citizen, the situation is worrying.
Household debt in the US is also climbing, reaching nearly $13 trillion by the end of 2017. According to the Federal Reserve Bank of New York, total household debt increased by $193 billion to hit $13.15 trillion at the start of 2018. Credit card debt alone grew by $26 billion, ending 2017 at $834 billion, and it’s likely higher now.
Mortgage borrowing has jumped 3%, consumer spending increased by 3.8%, and the annualized consumer credit rate leaped by 7.8%. The US economy is unexpectedly performing well, with real estate assets rising by $454.3 billion, the highest since Q3 of 2016. Company liquid assets increased from $2.43 trillion to $2.5 trillion quarterly, while federal government obligations slightly decreased by 0.2% annually.
These trends have mixed implications for households. Strong economic growth contrasts with rising credit card and personal loan debts. Student loans, auto loans, mortgages, and other household debts are making it harder for families to manage their earnings effectively.
A major concern is the Federal Reserve Bank’s policy of quantitative tightening. The CME Group FedWatch Tool shows an 88.8% chance of a 25-basis point interest rate hike on March 21, 2018, placing future interest rates around 1.50% – 1.75%. Rising rates directly impact disposable incomes and debt obligations, making repayments tougher for households.
Every rate increase puts more strain on households, escalating the cost of interest repayments. Even a 25-basis point rise can significantly reduce disposable income after several hikes. However, lower personal taxes are providing taxpayers with more pocket money, which is a notable advantage.
Managing debt is challenging, but many individuals have succeeded. Tyler Perry is one such example. He overcame financial hardship and built a net worth of over $400 million through a five-point strategy for financial success. His key principles include narrowing focus, managing money wisely, understanding the market, saving diligently, and maintaining self-belief.
Success stories like Perry’s highlight how focusing on long-term goals and implementing debt-reducing and savings-increasing strategies can improve financial health. Effective debt management techniques, such as debt consolidation, mitigation, settlement, and credit counseling, help reduce repayment burdens on credit lines. The goal is to align spending with financial realities, ensuring a surplus at the end of the month by living within means.