\u201cThose are some crazy numbers.\u201d<\/em><\/p>\n An old friend recently reached out, and that line immediately caught my attention. He was referring to the staggering 36 trillion<\/em> dollars\u2014the current national debt. It\u2019s a striking figure, prompting the question: how did the country\u2019s debt balloon from a trillion dollars back in 1981 to 36 times<\/em> that today?<\/p>\n \u201cVery irresponsible, imo,\u201d<\/em> my friend added.<\/p>\n This sentiment resonates with many, as it seems a reasonable response. However, the challenge lies in how most people view the debt in isolation, neglecting the various factors we\u2019ll explore today.<\/p>\n My perspective is clear: the rising US government debt is not<\/em> a valid reason to shy away from stocks or, specifically, the 8%+ yielding closed-end funds (CEFs) that include our favorite stocks. I\u2019m referring to funds that hold robust blue-chip companies, such as Visa (NYSE:)<\/strong>, JPMorgan Chase (NYSE:)<\/strong>, and NVIDIA (NASDAQ:)<\/strong>.<\/h2>\n It\u2019s true that excessive debt is unsustainable, and ultimately, we taxpayers bear the responsibility for it. Yet, there\u2019s more to the narrative.<\/p>\n In 2017, total government debt reached $20 trillion. Interestingly, that was the last time I delved deeply into this topic. My stance remains unchanged: the US government is financially healthier than the average American.<\/p>\n This is largely because people often view the debt in isolation. The US government possesses numerous tools and favorable trends that make managing its debt more feasible than many realize.<\/p>\n Let\u2019s consider a crucial figure: the annual revenue the government collects through taxes and fees.<\/p>\n Currently, about 18% of the US economy contributes to federal revenue, amounting to approximately $5.2 trillion. If Uncle Sam were to allocate all of that revenue to debt repayment (which is, of course, impractical), he could clear it in about six-and-a-half years.<\/p>\n Here\u2019s the key takeaway: that six-and-a-half years is only slightly higher<\/em> than the six years it would have taken in 2017. It\u2019s worth noting that a pandemic occurred in that timeframe, significantly impacting public debt.<\/p>\n Thus, when viewed through this lens, government debt has remained relatively manageable compared to eight years ago, and it would likely be even more so if not for COVID-19.<\/p>\n Now, let\u2019s further analyze debt in relation to GDP growth:<\/p>\n Before the pandemic, both federal debt and GDP were growing at nearly the same rate. The pandemic caused a spike in debt, while GDP also suffered due to lockdowns. Over the last eight years, GDP has increased by about 55%, while total debt has surged by approximately 80%.<\/p>\n This indicates that America\u2019s debt-to-income ratio is worse than it was pre-pandemic, but this isn\u2019t due to a structural issue; the pandemic is the primary culprit.<\/p>\n Still, a one-time hit could pose long-term challenges, right? Certainly, but consider this chart.<\/p>\n The increase in government debt due to the COVID-19 crisis appears alarming due to the sheer numbers. However, when compared to the significant rise in debt following the 2008\/2009 financial crisis, the 2020 increase seems relatively minor.<\/p>\n Before 2008, the US public debt-to-GDP ratio was around 35%. In less than five years, it doubled to 70%, where it remained until the pandemic pushed it above 100%, before settling at 96% currently.<\/p>\n On a relative scale, the spike in 2008 was significantly worse than that of 2020. Yet, America weathered that storm just fine. Therefore, there\u2019s no need for concern unless this trend shifts direction.<\/p>\n The real story lies in labor productivity<\/em>. Since 2007, it has risen by a third, meaning Americans now produce about $1.33 for every dollar they produced back then. This upward trend signifies progress, growth, and prosperity. With the advent of AI, productivity is poised for another boost.<\/p>\n This also explains why the market has delivered 10.4% annualized returns over the last two decades, consistent with the 10.3% annualized returns over the past century. During this period, federal debt has increased, as has the government\u2019s income, driven by higher productivity leading to increased GDP.<\/p>\n If you\u2019re contemplating reducing your US holdings due to the debt, keep these three points in mind:<\/p>\n Now is the time to enhance our US holdings, particularly through CEFs yielding 8%+, which is undoubtedly the best approach.<\/p>\n With CEFs, we gain exposure to strong blue-chip stocks, often at a discount, as these funds\u2019 market prices can\u2014and frequently do\u2014trade below their portfolio values. This is referred to as a \u201cdiscount to NAV\u201d in CEF terminology.<\/p>\n High dividends and significant discounts from S&P 500 stocks are hard to find elsewhere. It\u2019s nearly impossible to achieve this through index funds or direct stock purchases. Any fears\u2014leading to larger discounts\u2014stemming from exaggerated debt concerns only sweeten our investment opportunities.<\/p>\n Disclosure:<\/strong> Brett Owens and Michael Foster are contrarian income investors who seek undervalued stocks and funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement<\/a>.”<\/em><\/p>\n<\/div>\nBeyond Alarmist Debt Headlines<\/strong><\/h2>\n
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