America is undeniably an economic powerhouse, but Tesla CEO Elon Musk — the richest person in the U.S. and the world — is sounding the alarm about its financial future.
“The country is going bankrupt. If we don’t take action, the dollar’s going to be worth nothing,” Musk said during a recent appearance on The Joe Rogan Experience podcast.
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Musk’s alarm centers on the ballooning U.S. national debt, which currently stands at $36.17 trillion. Managing this staggering debt comes with a hefty price: interest payments alone are a significant and growing strain on government finances.
“The interest payments, which are already 23% of all government income… is just going to pay interest right now, and that number is continually rising,” Musk explained. “So if we don’t do something, the entire government budget will be paying interest — there won’t be money for anything. No, there won’t be money for Social Security, there won’t be money for Medicare, nothing. That’s where we’re headed. That’s what bankruptcy means.”
The numbers paint a grim picture. In fiscal year 2024, interest on U.S. federal debt totaled $1.1265 trillion, while the federal government collected $4.92 trillion in revenue.
Musk stressed the urgency of the situation: “I’m looking at the numbers here and I’m like, if we don’t do something, America is toast.”
Can America print its way out?
Whether America can technically go bankrupt is a complicated question because the federal government cannot file for Chapter 11 bankruptcy reorganization. Instead, Congress would have to decide to let the federal government default on its debt, otherwise it can keep borrowing as long as there is demand from investors for government bonds.
“Technically speaking, the government can’t go bankrupt because it only promised to hand over a certain number of dollars; it didn’t promise what the value of those dollars would be. Because the value of the dollars was never specified, the government can print enough to render the dollars nearly worthless. To the rest of us, the effect is the same as the government going bankrupt,” write the co-hosts of podcast “Words & Numbers.”
In other words, printing money to stay afloat has significant consequences, as inflation erodes the purchasing power of the U.S. dollar. And while that’s a concern, say J.P. Morgan market analysts, they may not go so far as predicting the country is “toast.”
They say the likelihood of the country defaulting on its debt remains “extremely low.” This is because the U.S. benefits from a “unique position” of issuing debt in its own currency — which also happens to be the global reserve currency — along with a robust tax base that can help raise revenue through tax reforms if required.
The analysts point to Japan as an example. With a debt-to-GDP ratio of 228% — nearly twice the indebtedness of the U.S. — they argue it is indeed possible for a country to avoid a fiscal crisis despite a hefty burden of debt.
So whether the situation is as critical as Musk believes remains to be seen — but there’s still a way to make your own silver lining regardless. Throughout history, savvy investors have found ways to shield themselves from inflation’s bite. Musk himself highlighted this strategy in 2022, just before inflation hit a 40-year high in the U.S. “It is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high,” he advised.
Here’s a closer look at some of those aforementioned assets.
‘Physical things like a home’
When inflation rises, property values often increase as well, reflecting the higher costs of materials, labor and land. At the same time, rental income tends to go up, providing landlords with a revenue stream that adjusts for inflation.
This combination makes real estate an attractive option for preserving and growing wealth when the U.S. dollar is losing its value.
Over the last five years, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index has surged by more than 50%.
You can invest in real estate by purchasing rental properties and becoming a landlord. You can also explore real estate investment trusts (REITs), many of which are publicly traded on stock exchanges.
Alternatively, crowdfunding platforms have made it easier for average Americans to invest in rental properties without the need for a hefty down payment or the burden of property management. Some platforms will even let you start earning rental income with investments as little as $100.
Read more: Jeff Bezos and Oprah Winfrey invest in this asset to keep their wealth safe — you may want to do the same in 2024
‘Stock in companies you think make good products’
Investing in stocks of companies that “make good products” has proven to be a successful strategy during the recent inflationary period, with Musk’s own Tesla (TSLA) serving as a standout example.
Tesla’s innovative and popular electric vehicles have enabled the company to dominate the growing EV market in the U.S. This success has translated into significant rewards for its shareholders: Tesla’s stock has skyrocketed by over 1,500% in the last five years.
Another example is Apple, a company whose flagship product, the iPhone, commands the largest share of the U.S. smartphone market. Apple’s ability to consistently deliver desirable products has paid off for investors as well. Over the past five years, Apple’s stock has surged by 260%.
Of course, stocks are inherently volatile, and past performance is no guarantee of future results. For the average investor, the Oracle of Omaha Warren Buffett himself has long advocated a simpler strategy: “In my view, for most people, the best thing to do is own the S&P 500 index fund.”
This straightforward approach gives investors exposure to 500 of America’s largest companies across various industries, providing diversified exposure without the need for constant monitoring or active trading.
The beauty of this strategy lies in its accessibility — anyone, regardless of wealth, can take advantage of it. Even small amounts can grow over time, and some apps even let you invest in an S&P 500 ETF with your spare change, making it easier than ever to build wealth alongside the world’s financial elite.
A timeless alternative
When it comes to preserving wealth and fighting inflation, few assets have stood the test of time like gold.
The appeal of gold is straightforward: the yellow metal can’t be printed in unlimited quantities by central banks like fiat money. And because its value isn’t tied to any one currency or economy, gold could provide protection during periods of economic uncertainty — or in the kind of dollar collapse scenario Musk has in mind.
As inflation erodes the purchasing power of paper currencies, gold’s appeal as a stable store of value often grows, driving up demand. In 2024, gold prices surged by 27%, surpassing $2,600 per ounce.
Schiff believes this is just the beginning. “If gold can go from $20 an ounce to $2,600 an ounce, it can go from $2,600 to $26,000, or even to $100,000. There’s no limit because, again, gold isn’t changing — it’s the value of the dollar that’s decreasing,” he recently stated.
At today’s prices, a climb to $100,000 would represent an astounding upside of over 3,700%.
It’s easy to invest in gold these days. Investors can purchase gold bullion, own shares of gold mining companies, invest in gold ETFs and even tap into potential tax advantages through a gold IRA.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
