Recently, Congress approved a significant increase of $150 billion in discretionary spending for 2018. As the US moves forward with an increase in defense spending, the burden on the average taxpayer is increasing. This pressure is further compounded by tax cuts, projections indicate will cause noticeable reductions in government revenue streams.
However, the strength and appeal of the USD are expected to continue attracting foreign investment. From a wider economic perspective, the primary factor that could negatively impact the US credit outlook is a protectionist trade policy, in line with President Trump’s campaign promises. The US had a debt to GDP ratio of 77% in 2017, but the 3.4% deficit of the Gross Domestic Product (GDP) poses a significant concern.
THE TRICKLE DOWN EFFECT: HOW NATIONAL DEBT AFFECTS THE AVERAGE TAXPAYER
Looking at the general economic level, the US national debt stands at $20.924 trillion. That equates to a debt per citizen of $63,925 and a taxpayer debt of $172,669. With the US federal tax revenue at $3.368 trillion, and $10,292 per citizen, these figures are cause for concern.
US household debt is increasing, nearing $13 trillion as of December 31, 2017, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. Quarterly, total household debt grew by $193 billion to peak at $13.15 trillion at the beginning of 2018. Credit card debt saw an increase of $26 billion, reaching $834 billion by the end of 2017, and recent statistics suggest a likely higher debt amount.
Mortgage Borrowing Has Jumped 3%
Consumer Spending Increased by 3.8%
Annualized Consumer Credit Rate Jumped 7.8%
The US economy has shown better performance than predicted, with real estate assets increasing by $454.3 billion, the highest count since Q3 of 2016. For companies, liquid assets grew from $2.43 trillion to $2.5 trillion quarterly, while the federal government obligations experienced a drop of 0.2% on an annualized basis.
These figures present both positive and negative implications for households. While US economic growth remains strong, rising credit card debt and personal credit lines pose problems. Debt from student loans, auto loans, mortgages, and other household debts are making it harder for US households to counteract the impact of debt on their earnings potential.
The Federal Reserve Bank’s quantitative tightening policy is a major concern. With the CME Group FedWatch Tool projecting an 88.8% chance of a 25-basis point interest rate increase on March 21, 2018, the future interest rate may fall around 1.50% – 1.75%. Any rise in interest rates significantly affects personal disposable income and debt obligations.
Whenever rates increase, the strain on US households expands due to increased repayments concerning interest. Even if it’s just a 25-basis point increase, the cumulative effect of multiple rate hikes reduces household disposable incomes. Nevertheless, several economic advantages are evident – most notably, the reduction in personal taxes giving taxpayers more money in their pockets.
Confronting debt is a challenge, but many have successfully overcome it. Tyler Perry is one such example, who evolved from hardship to a net worth of over $400 million through a five-point strategy for financial success. He took advice from Oprah Winfrey, and implemented these lessons:
Narrow Your Focus
Concentrate on Your Money
Understand Your Target Market
Save as Much as Possible
Maintain Self-Belief
His success story is one of many in the US, each highlighting how a focus on big-picture goals and the implementation of debt-reducing and savings-increasing strategies can enhance financial health. By managing personal finances effectively, the broader economic landscape can improve.
Several techniques, such as debt consolidation, debt mitigation, debt settlement, and credit counseling can help lessen the debt burden, primarily through lowering repayments linked to lines of credit. The aim is to reduce the debt burden by adjusting spending to align with one’s financial capabilities. Living beneath your means ensures a surplus at the month’s end.
