Roadblocks Preventing an Economic Recovery and How to Position a Self-Directed IRA (updated for 2022)

As we continue to see the bogus numbers coming out of Washington, and the political rhetoric that comes from the President’s reelection, we thought we would look at what stands in the way of solid recovery and compare that to what the government is doing.

Issue 1 – The National Debt

The United States is currently running a debt rate of 130% of GDP. This means that we are spending way more than we generate in the entire economy, which means we are not saving anything. This debt level is more the 100 points higher than the high watermark of 1928. So, in relative terms, we have way more debt than we did before the great depression of the 1920’s.

We all know that you cannot continue maintaining such massive amounts of debt without some negative impact. The current projections show that the government debt will increase in 2023 and 2024.

Why is this important? Because at some point, the government has to continue printing money and attempting to borrow to pay for this debt. This eventually reaches a point where the government cannot borrow anymore. This, in turn, leads to a crisis where the government has to cut back drastically, miss payments, tax more, etc. 

Issue 2 – Worldwide debt

There is a lot of attention and focus on Europe and its financial crisis. This is because their debt situation is worse than the US debt crisis. Currently, the United States has about $30 trillion in debt, and we have a GDP to debt ratio of nearly 107%. In the 19 countries that utilize the Euro as currency, they have about $68 trillion of dollar-equivalent debt and only $14 trillion of GDP, so Europe is even more heavily indebted.

Why does this matter? Because the Europeans will and are implementing austerity measures. This is leading to a shrinking economy and social unrest. Countries in this shape of not consumers and great trading partners which means that we are not exchanging our goods and services with them. This leads to an economic contraction in the US.

Issue 3 – Printing Money

When the government engages in quantitative easing (aka printing money), it injects more liquidity into the system. One of the effects of this is that it shifts the demand curve for goods and services because there is more money in the system. This causes the price of goods and services to increase. So, the average Joe or Jane Lunch Bucket is seeing a 2% annual increase in wages during QE2, but because of printing, prices went up 4%.

So, in reality, the regular person is getting worse off because price increases, due to printing or QE, are eroding their purchasing power. Therefore, people start cutting back on spending. Consumer spending is 2/3 of the spending, so reductions in this component lead to slower economic growth and actual shrinking of GDP.

Issue 4 – The Required Solution May Be Too Hard

If the money printing is going to be turned off, the government is going to have to:

  1. Get social security and medicare under control
  2. Get the tax system under control

These are two big drivers of government debt and obligation. The willpower that may be required to correct this may be a very tall order and not feasible. If these two issues do not get addressed, then we are looking at some very difficult economic conditions.

How does this impact my self-directed IRA?

We firmly believe that every retirement portfolio needs to be properly balanced with some assets that deal with real estate, precious metals, or other tangible assets that are out of the direct manipulation and control of Wall Street and the Federal government.

With the current national and global debt issues, current and pending austerity, and total lack of political action and willpower, it only makes sense to have a self-directed IRA with loans, metals, real estate, private stock, etc. The interesting thing about assets such as real estate, private stock, small business, etc., is that they become desirable in both good and bad times.

The information provided is for educational purposes only and is not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self-directed IRA.