💰 5 Fact Friday: America’s $35 Trillion Problem

ECONOMY
1. America’s $35 Trillion Problem 🏦

The U.S. national debt just soared past $35 trillion, up from $34 trillion in January. This staggering number reflects a growing problem driven by unchecked federal spending and elevated interest rates.

But how do we make sense of $35 trillion? Let's break it down.

Deficit as Credit Card Debt

In 2024, the government is on track to record a $1.9 trillion deficit, the third-largest in U.S. history. This year’s deficit is only surpassed by the COVID “stimmies” of 2020 and 2021 when the economy was shrinking faster than an Ozempic waistline.

To cover this excess spending, the government racks up debt, much like you might run up a credit card bill.

The only difference is… the government’s balance stands at $35 trillion.

Now that sounds like a lot, but as the world’s largest economy, is it really a problem? Here are 3 ways to dive a level deeper:

Debt / GDP

Think of the debt-to-GDP ratio like your personal debt-to-income ratio. At 121.7%, it's like owing $121,700 for every $100,000 you earn in a year.

Clearly, the debt level is staggering, even considering the size of our economy.

Interest Payments / Tax Revenue

Maintaining this debt now costs $1.1 trillion per year, or 36% of all tax revenue collected.

Imagine if 36% of your paycheck went straight to credit card interest—not even principal! Ouch.

Debt Per Capita

Next, divide $35 trillion by the U.S. population of approximately 330 million. Each citizen, including children, theoretically owes around $106,000.

Let’s all chip in and pay our part! What do you say? 😉

The Takeaway

Just like in personal finance, high debt levels limit future flexibility. If the government spends too much on interest payments, there’s less money to go around for infrastructure, education, and healthcare.

It feels an awful lot like skimping on home repairs because you’re still paying off last year's shopping spree.

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COMMODITIES
2. Gold Takes Center Stage 🥇

With the Olympics in full swing, gold isn’t just for athletes—it’s winning big in the markets too!

The price of gold recently reached a new all-time high and is currently sitting just shy of $2,500 per ounce. Several factors are driving this surge.

First, geopolitical tensions, like the ongoing Israel-Hamas conflict, have historically pushed investors toward safe havens.

Central banks are also playing a major role. They’ve been on a gold-buying spree, setting a new first-quarter record in 2024. China leads the pack, adding 27 tons in Q1 alone.

This trend is partly driven by America’s use of financial sanctions against Russia. Weaponization of the dollar has led some countries to further diversify their reserves, trading U.S. Treasuries for gold.

Lastly, falling interest rates are boosting gold.

The European Central Bank, Bank of Canada, Bank of China, and several others have already reduced rates. The U.S. is expected to follow suit as soon as September.

As rates come down, bonds lose their luster. This is when gold can shine bright, drawing in those risk-averse investors.

Know The Community: Poll Question 💬

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Here are the top 3 results from last week’s poll:

What percentage of your net worth is in your home?
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3. 0% – I’m a renter!

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POLITICS
3. Inside Kamala’s Investments 🔍

What’s the scoop on Kamala Harris's finances and why do we care?

It’s the same reason we track Nancy Pelosi’s trades and make note of Donald Trump’s real estate holdings. Like it or not, it’s rational to act in one’s self-interest and politicians are certainly not above doing so.

Now that Harris has a real shot at the presidency, let’s take a quick look at her and her husband Doug Emhoff’s incentives.

Income and Assets

• Income: In 2023, Harris and Emhoff earned $450,299. This includes Harris’s vice presidential salary of $218,784, Emhoff’s $174,994 from Georgetown University, and ~$6,000 from book royalties.

• Retirement Savings: They hold between $1.79 million and $4.4 million in retirement accounts. Emhoff’s IRAs total between $1.27 million and $3.19 million, while Harris’s 401(k)-type accounts are worth between $525,000 and $1.25 million.

• Cash and Bank Accounts: They have between $850,000 and $1.7 million spread across four bank accounts.

• Pensions: Harris is eligible for a state pension of $3,981 per month starting in October, and she has another pension from the San Francisco Employees’ Retirement System valued between $250,001 and $500,000.

• Real Estate: They own a 3,500-square-foot home in Los Angeles, valued around $5 million. The property carries a $2 million, 2.625% seven-year adjustable-rate mortgage (ARM), ending in 2027.

Investment Strategy

The couple’s portfolio is relatively boring, which is refreshing for a politician.

Less than half of their ~$7 million net worth is in stocks, and they do not hold any individual securities or have any sector concentration.

The Takeaway

Harris’s finances are quite conservative. Her diversified holdings align her financial incentives with the residential real estate and stock markets—just like most Americans.

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MARKETS
4. Big Tech Earnings Breakdown 💸

The recent rotation out of Big Tech has been swift and painful—wiping out more than $2 trillion in market value.

Now, with earnings season underway, let’s see if Microsoft, Meta, Apple, and Amazon managed to weather the storm or if they are in for more turbulence.

$MSFT Slides 1.4% on Slowing Cloud Growth

Microsoft reported a solid quarter, beating expectations on revenue and earnings. However, the 15% sales increase wasn’t enough for investors.

Azure, Microsoft’s cloud business and main growth driver, slowed slightly. This has led investors to question the payback period of heavy AI and data center investments.

$META Rips 4.8% on Increased Ad Sales

Meta exceeded sales expectations with $39.1 billion, thanks to AI-driven improvements in ad targeting. Zuckerberg also predicted that the Meta chatbot would be the most widely used AI assistant in the world by year-end.

Although Meta intends to ramp up AI investment, the company’s Q2 results created optimism about the revenue potential of these initiatives.

$AAPL Up Slightly Despite iPhone Sales Drop

Apple saw a 1% drop in iPhone sales, down to $39.3 billion, marking the lowest level in three years. This dip was offset by strong performance in iPads (up 24%) and services (up 14%).

Overall, revenues rose 5% to $85.8 billion, and profits grew 8%. Struggles in China and the absence of overt innovation are ongoing challenges, but next month’s new AI-powered phone models may help turn the tide.

$AMZN Hammered on Disappointing Forecast

Amazon reported earnings of $1.26 per share, beating estimates. But the company’s Q2 revenue and Q3 guidance fell short, leading to a 7% drop in after-hours trading.

AWS, Amazon's cloud business, posted strong results but its booming ad segment slightly missed targets. Like $MSFT, the company’s heavy infrastructure investments are ramping up—and being second-guessed.

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PERSONAL FINANCE
5. Emergency Funds Unlocked 🆘

Need emergency cash? The IRS now allows penalty-free withdrawals of up to $1,000 from your traditional retirement account.

Here's the scoop:

The IRS already permits hardship distributions, early withdrawals, and loans in times of need. However, these options require you to meet specific qualifications and fill out time-consuming paperwork.

The new rule simplifies accessing your funds in a pinch. The IRS has broadened the definition of an emergency to cover any “necessary emergency personal expenses.”

This includes everything from medical bills and car repairs to any urgent personal expense you can justify. Unlike previous rules, you no longer need to provide much documentation to access your funds.

This option is designed for those who may not have $1,000 readily available in their checking or savings accounts. It’s a quicker and cheaper alternative to high-interest credit cards or personal loans.

But there are caveats:

• You can only make one withdrawal per year.

• You can’t deplete your account below $1,000.

• Not all 401(k) plans have adopted this rule.

• If you don't repay the withdrawal, you must wait three years before making another emergency withdrawal.

The benefits of extra liquidity are obvious. However, there are two hidden drawbacks.

1. You'll still owe income tax on the withdrawn amount if you don't repay it.

2. Tapping into your retirement funds can jeopardize your long-term financial security. With Social Security's long-term future uncertain, this is not a risk to be taken lightly.

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