Every year the federal government spends some money, and brings in some money. Over the last 21 years we’ve spent more money that we have brought in! How does the government do this? By borrowing money! When the government sells bonds, they’re really just borrowing money to spend now, hoping to pay it back later! One misconception is we borrow all of this money from China. That’s not really true. We’re currently in about 30 TRILLION dollars of federal debt. Of that 23 trillion is held by American citizens and businesses. Of the $7T held by foreign countries, Japan is number one at $1.2T and China is second at a measly $980B. That rounds down to $0T!
The federal government is not setting a great example of “living below your means”. But to be fair the macroeconomics of running the largest economy in the world are different than what an individual needs to do to build wealth.
I labeled the chart by president because I’m a social media influencer and I do wacky things to get attention. But is each president here responsible for the deficit in the years listed? Not really. Was it Obama’s fault he took office in 2009 in the middle of the worst financial crisis in decades? Nope. Was it Trump’s fault the worst pandemic in 100 years broke out in the middle of his term? Nope. There’s a lot of big moving parts at play, of which who sits in the oval office is just one.
And while I’m sure the comments will be VERY civil with people squinting their eyes trying to figure out how this chart proves the red guy or the blue guy is the bad guy, it can’t really be used for that. But I think it is a good idea to have a general sense of if our government is living above or below our means and the trajectory it is on!
Don’t be like the US government. Follow the two rules.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.