The United States’ national debt now exceeds$36 trillion – the highest in history. What does this mean to you and me?
Borrowing to acquire an appreciating asset makes sense. Houses are an example in most cases. Another example is the stock market when it drops into bargain territory.
Professional violinists who buy the right kind of violin at the beginning of their career can consider it a part of their retirement plan. The same goes for violin bows. Fifty years ago, Stradivarius violins sold for between $25,000 and $100,000. Today, they are selling between $2 million and $20 million.
That works out to approximately 12.73% per year or more.
Borrowing to buy a depreciating asset, such as an automobile, will move the individual towards poverty in old age. About 80% of new cars and 50% of used cars are bought using some form of borrowed money.
What about borrowing by companies?
When companies use their own cash or borrowed money to buy their own shares, we are looking at a great time to invest in those companies. The shares almost always go up.
And what is the risk involved? The risk is often minimal and primarily consists of decreased flexibility.
For individuals, good debt consists of borrowing to invest in assets that would likely appreciate such as the stock market.
What can we expect from government borrowing now at its highest level ever?
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