How much can we borrow before we have to pay the piper? The question doesn’t just pertain to personal financial planning, but also to government spending, President Biden recently announced he wants another 1.9 trillion to help with the economic issues caused by the pandemic. Can we afford that? Can we just keep borrowing and borrowing and borrowing, printing trillions of dollars with no penalty? Could we really just sail off into the sunset, with a happy ending for all?
There’s a historical precedent for piling up debt upon debt—actually more than one. The French, the British, the Germans; they all faced massive debt. It didn’t end well for any of them.
A great PBS documentary called The Ascent of Money illuminates the financial history of the world. I recently watched the show with my youngest daughter, who’s getting her degree in business analytics, and was especially interested in the history of borrowing. In France, Louis the XIV and Louis XV racked up a bunch of debt building palaces and waging war, and kept raising taxes to pay for it. They passed that debt on to Louis the XVI. You may remember him—he was beheaded during the French Revolution. The British also made taxpayers pay off the country’s debt, and that was one of the sparks that touched off the American Revolution in 1776. Germany borrowed heavily to finance World War I and then was forced by the Treaty of Versailles to pay 132 billion gold marks (about $269 billion today) in reparations for that war. The country’s huge debt caused massive economic problems—and is widely held to have contributed to the rise of Hitler.
Luckily, we’re not there yet. Interest rates are still practically zero so we can borrow a lot. We can’t continue to keep borrowing, however, or I believe our debt’s house of cards will fall. I also believe anyone who is retired or close to retirement should prepare for that end by protecting any retirement investments with a defense plan like our Invest and Protect™ strategy. Want to know more about our strategy and our comprehensive financial planning for retirees? Contact us today to schedule a free, no-obligation consultation with one of our credentialed Retirement Planners.
Ken Moraif, CFP®, MBA
Senior Advisor at Retirement Planners of America