While speaking with clients across the political spectrum in recent months, I have heard a sense of unsettledness about where our country may be going.
I personally am unsettled about our economic future. I worry that our federal debt — now larger than our entire economy and equal to more than $200,000 per taxpayer1 — may slow economic growth and increase inflation. I also suspect we may see tax increases, even beyond those scheduled to start in 2026.
Slower growth: A study by the World Bank found that countries whose debt-to-GDP [GDP = economy size] ratios exceed 77% for prolonged periods experience significant slowdowns in growth; every percentage point above this level costs countries 1.7% in economic growth.2
Higher inflation: As a country reaches a riskier level of debt, it must generally pay a higher interest rate to encourage people to buy that debt. This creates higher expenses that seep through the country’s economy, increasing prices for consumers.
Slow growth is the working person’s enemy. Inflation is the retiree’s enemy.
As challenging as these possible situations may be for society, there are solutions for investors. We will continue to bring solutions such as these, as suitable, to your attention:
- International opportunities if domestic investments stagnate
- Current tax planning opportunities that may help reduce future taxes, including Roth conversions, marginal tax rate planning, qualified charitable distributions, tax location planning, etc. (Offered in consultation with your CPA.)
We see inflation and slower growth as mid-term vs. immediate considerations. Over two years, we are bullish, although we believe there will be dips and challenges along the way. Learn more about our outlook.
When I find myself reading a bit too much about today’s political situation, I say to myself, “Laura, this is not the last election you’ll live through. A democracy can elect anyone!” Winston Churchill said, “…democracy is the worst form of government except for all those other forms that have been tried …” In 1998, I voted for Jesse “The Body” Ventura, previous all-star wrestler, for Minnesota governor. Winston, did you cringe when he was elected?
It is possible that the stock market may predict the winner of the election: 83% of the time since 1928, if the stock market was positive for the three months before the election, the incumbent has won; if negative, the challenger has won.3 August stock market results are less predictive because political conventions create predominantly positive stock market results in August during election years; September and October are the months to watch. 3
We are grateful that you, our clients and our friends, share your concerns and joys with us whether about life, family, finances, or the world. Thank you for your trust and confidence.
- US Debt Clock as of August 9.
- World Bank. Finding the Tipping Point – When Sovereign Debt Turns Bad. Published August 2010.
- Raymond James. Weekly Investment Strategy. Published August 7, 2020.
Laura is a Senior Wealth Manager and the Founder of LWP. She has a master’s degree in tax and is an excellent listener. While she is a sophisticated financial planner with experience in complex issues, her priority is ensuring a financial plan works for people.