America's Financial Health - Part II
- Christopher Gerber
- Apr 21
- 3 min read
April 21, 2025
We as Americans have a very real reason for concern in maintaining our way of life. For eons we have accepted significant deficit spending from our hired help in Washington as “business as usual.” Comedians make jokes, as we do around the water cooler. We should be hearing the chickens cluck as they come home to roost. We are in a position, as Scott Bessent said in an interview recently, where we can have a true catastrophe in the near future, or we can finally address it now and minimize the pain.
Federal Government Financial Health
The bar chart below starting on the left builds this case. Net interest paid on spending is now 14% of the total budget, exceeding Medicaid, defense, and “other mandatory” spending. It is trails Medicare by not much and equals non-defense discretionary which is a BIG budget item.
The bar chart below on the right under sources of financing shows the results of the problem. The CBO-projected 2025 deficit is $1.865 trillion, or 27% of our total budget.
On the top right the Federal Deficit and Net Interest Outlays map shows that net interest outlays are expected to grow rapidly and become a larger part of the deficit.
On the bottom right the Federal Net Debt shows the enormous impact of not controlling our debt spending. In not that many years it could realistically place us in the top 10 most indebted nations. Approaching that status is not an on/off switch. It is a grueling trip potentially full of mini and maxi pain events. Interest rates, credit ratings, stock market volatility, business efficiency, national security, and living standards are all impacted. The recklessness problem has been kicked down the road for someone else to handle for decades.
American Financial Health
On the left, it shows total assets and liabilities of U.S. households. On the top right, we show the household debt service ratio, which is the percent of after-tax income used to make payments on mortgages and other consumer debt. After declining to a 40-year low during the pandemic, aggressive Fed tightening has contributed to higher and rising household borrowing costs. On the bottom right, we show flows of auto loans, credit card debt, student loans and mortgages into 30-day delinquency. After falling after the pandemic, delinquencies have been steadily rising and are now above pre-pandemic levels for auto loans, credit cards and mortgages.
Inflation Fear
This page shows inflation drivers since 2018. Headline inflation peaked in June 2022 as a result of the Ukraine/Russia War and post-pandemic related supply issues. Inflationary pressures have eased since then, but headline inflation has moved higher in recent months. The table shows the average and most recent readings for headline and core CPI, along with headline and core Personal Consumption Expenditure (PCE) price deflator, which is another measure of prices. Notice that shelter is by far the major contributor followed by dining, recreational, and other services.
When we hear of “inflation fear” there is not consideration for lower-cost substitutes and that if a recession happens inflation naturally decreases. Stagflation like we saw in the 1980s is a potential but the Fed is aware of the possibility and has not expressed high concern.
Recap
For investors, the important questions today are the same as they were at the start of the year: Do they have a balanced portfolio in terms of risk and expected return for where they are in life, or has it drifted away from that balance? Are they, even after the last few days, still too concentrated in over-valued securities? And do they have a truly globally diversified portfolio including allocations to value equities, fixed income, international equities and alternatives. This is no time for bravery when it comes to tactical moves. However, it is a good time for a prudent reassessment of strategic allocations.
About FIDERE
Fidere Advisors sees the value in broad diversification. We may emphasize certain areas but generally it is not to the exclusion of all other areas of the market both foreign and domestic. We feel that this is a prudent methodology when combined with hiring managers that have exhibited successful risk-managed processes and therefore consistent performance.
To discuss your situation or learn more about FIDERE, please connect with us anytime at: www.fidereadvisors.com, call (833) 234-3373, or schedule a web meeting at: www.calendly.com/chris-gerber. To view aggregate portfolio models, visit: www.fidereadvice.com/models.
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Advisory Services through Fidere Advisors, LLC. (dba FIDERE), a Registered Investment Advisor. Information provided has been prepared from sources believed to be reliable but is not guaranteed and does not represent all available data necessary for making financial decisions and is for informational purposes only. FIDERE and its representatives do not offer tax or legal advice through FIDERE. Please consult the appropriate advisor.
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