by Gary Alexander

September 21, 2021

Federal Fiscal Year 2021 ends in 10 days and the U.S. may default on its debt within a month if the “debt ceiling” isn’t lifted. While progressive politicians harangue us over sea levels rising an inch per decade, these same politicians ignore a rapidly rising ocean of red ink – over $3 trillion in FY-2020 and almost $3 trillion this year. Last Monday, the Treasury reported that the deficit for the first 11 months of FY-2021 totaled $2.7 trillion in red ink, despite the fastest GDP growth rate since 1984. Outlays for the 11 months through August 31 rose 4% to a record $6.3 trillion, while federal tax revenues totaled only $3.6 trillion.

After eight months of talking up one $3.5 trillion spending package after another, Congress now faces two imminent realities – (1) finalizing their 2022 budget, including funding the deficit, and (2) raising the debt ceiling. Failure in either task would result in a government shutdown. Treasury Secretary Janet Yellen has warned that any extraordinary measures to postpone the debt limit are likely to run out by mid-October.

Janet Yellen and the National Debt Chart Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

For Challenge #1, lawmakers need a 2022 budget in place before September 30 for the next fiscal year or the government shuts down. If lawmakers don’t have a budget in place by the time October begins, the government is required to reduce agency activities and stop “non-essential” operations. The most recent shutdown lasted 35 days, from December 2018 to January 2019 and coincided with a strong market surge.

When it comes to “funding the deficit,” the populist solution is always to “soak the rich,” but it’s a sad truth that there aren’t enough American billionaires to finance a single $3.5 trillion budget proposal, much less the full $7 trillion annual operating costs for the federal government – and you can only soak the rich once. After Year One of fleecing the fat cats, they’ll find legal ways to park their prime assets elsewhere.

There is clearly not enough surplus money in America to fund the wishes and desires of DC politicians – beyond the obviously necessary infrastructure spending we can all see needs work. The key to funding the deficit is the same way we can stop college debt, credit card debt or other personal debt – don’t spend so much beyond your means. Decide what is vital and spend that money first, while delaying deeper desires.

For Challenge #2, setting a debt ceiling is a silly tradition, like a diet club that constantly nibbles on chocolate bars while promising to do better tomorrow. It’s not worth debating this fiction, but it makes great theater. As Jack Hough wrote in Barron’s (“Fiscal Chicken, Anyone? How to End Debt Ceiling Fights,” September 20, 2021), “America has imposed a statutory limit on its debt for just over 100 years and has raised that limit around 100 times. ‘Ceiling’ probably isn’t the best metaphor – debt hat, maybe.”

Hough reminds us that the federal debt was only 35% of GDP in 2007, but this year will nearly triple to 101% of GDP, and “the debt ceiling amounts to performance art, not fiscal restraint.” For example, the top Republican in the Senate, Mitch McConnell, said last Tuesday, “Let me be crystal clear about this: Republicans are united in opposition to raising the debt ceiling.” Meanwhile, the Democrats may want to link a debt ceiling increase to a $3.5 trillion social spending bill under budget rules that would allow it to pass with just 51 Senate votes and thereby avoid a GOP filibuster. We’ll see how this kerfuffle works out.

At home, household debt has grown at a far slower pace than federal debt in the last two decades, with the exception of one line item (the red bar, on top) which soared – one big expenditure that needs addressing.

Public and Consumer Debt Charts Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Student Debt is an Entirely Avoidable Plague

All forms of debt are rising, but student loan debt has grown much faster than any other form of debt.

Nearly 55 years ago, I graduated from college with $500 in debt, which I paid off within a year. When I got married the next winter, I inherited my wife’s $900 college debt, which took three years to retire, since I didn’t earn much, and we made a game out of frugality, as we added three children in quick order. We both worked 20 hours a week in college, something the college required, and we thought was normal.

That’s not important to bring up in this era of massive college debts, but what’s REALLY impressive is that our two eldest grandsons just graduated from college in 2019, pre-COVID, and both graduated with ZERO college debt. I only sent them Christmas cash, and their parents provided minimal help. They did what I did, and what their parents and I counseled: Planning ahead and living frugally. One parent used a 529 savings plan, but mostly they (1) attended low-cost community colleges the first two years, then (2) switched to an extension of a big-name university, so they could (3) lived mostly at home, saving on room and board and (4) worked summers and weekends to help pay tuition and maybe take a semester or two off.

One grandson is now an engineer earning high five figures in Silicon Valley with no debt, and the other is in social work, earning less but is satisfied and facing no debt. What more can kids hope for these days?

I bring this up since the average debt for a four-year bachelor’s degree is now $36,500, and that sum will likely haunt millions of students for decades. The national student loan balance has doubled in the last decade and it has multiplied five-fold since 2003, with the quality of education falling in the process.

National Student Loan Debt Balance Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

  • The average federal student loan debt is $36,510 per borrower.
  • Private college student loan debt averages 50% more, $54,921 per borrower.
  • A total of 45.3 million borrowers have student loan debt; 95% of them have federal loan debt.
  • 20 years after entering school, half of borrowers still owe $20,000+ on outstanding loan balances.

If the colleges were turning out a superior product, one could make an argument that this investment is worth the cost, but the product quality is decreasing while the price is rising, in part due to federal involvement in the loan process, allowing colleges to raise their prices egregiously high, with impunity.

The average debt (not cost, but debt) for a higher degree is much steeper – well into six figures:

Average DEBT incurred for a graduate degree
Medical degree $265,996
Professional doctorate $201,736
Law degree $157,315
Doctor of education $121,003
Doctorate in research $117,198

It’s time to choose your major carefully, then comparison-shop colleges for reasonable fees and do what my grandsons (and I) did. Graduate from college with virtually no outstanding debt.

It can be done, even today. My grandsons proved that. Don’t get fleeced by a sheepskin.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.


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About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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