The Rise of U.S. Debt Over Two Centuries

Over the past 200 years, the total outstanding debt of the United States has grown tremendously. Starting from a modest $70 million, the debt reached $1 trillion in a span of 220 years. However, in just the last two decades, it has skyrocketed from $1 trillion to an astonishing $35 trillion. This rapid increase is primarily due to the government’s continued borrowing to meet its expenditures, as tax revenues and other income sources are no longer sufficient to cover the growing expenses.

Why Does the U.S. Keep Borrowing?

The U.S. government borrows because its income from taxes falls short of what it needs to spend. To bridge this gap, it relies on borrowing, which involves selling debt to investors. These investors can be from other countries, with Japan and Saudi Arabia being notable examples. However, a pressing question arises: why should other countries continue to buy U.S. debt when there is no longer any tangible backing, such as gold or other assets, behind this paper debt?

The Sustainability of Public Debt

The concept of public debt sustainability is becoming a major concern. Just as households can’t sustain continuous borrowing without eventual financial problems, the same is true for countries. If a government continues to spend more than it earns, year after year, it will eventually face a financial trap. We have seen this happen in countries like Venezuela and Argentina, where excessive borrowing and unsustainable budgets led to economic crises. Similarly, the U.S. may face a need for significant restructuring if this debt problem isn’t addressed soon.

Confidence in the Currency Matters

A country’s currency remains strong as long as people and other nations have confidence in it. But if trust in that currency is lost, the situation can change rapidly. When countries begin to doubt the value of a currency, it can lead to severe consequences, much like what has happened with the currencies of Pakistan and Turkey. As long as the world has faith in the U.S. dollar, the country can continue borrowing, but if that confidence fades, it could spell trouble.

Protecting Your Portfolio Against Currency Risks

For individuals, it is important to understand the risks associated with holding assets in a single currency. If your wealth is tied up in one country’s currency, like the Indian Rupee (INR) or any other currency, you may face risks if that currency weakens significantly. To safeguard your portfolio, it is wise to diversify across different currencies and asset classes. This way, even if one currency or country faces a financial crisis, your other assets, denominated in different currencies, may offer some protection.

Diversification is Key

In a world where debt is rapidly growing and currency values can shift unpredictably, diversifying your portfolio is more crucial than ever. By spreading your investments across various currencies and asset classes, you can reduce the risk of financial loss due to currency fluctuations. This strategy provides a safeguard against unexpected economic challenges and ensures that your investments remain more secure in the long run.

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