Trading the National Debt

Trading the National Debt

With election season in full swing, and with the national debt once again at the forefront of the debate between the major Presidential candidates, looking at what that national debt actually is, and how to personally profit off of it, you can give your binary options trading a jump start and find more trading opportunities than ever before.

As of one of the latest estimates, the national debt stood at $19.7 trillion. This is the highest that it has ever been. Both candidates have tax policies that, as they currently stand, would actually increase the national debt.

One of the easiest ways to figure out how to profit off of the debt, and whatever happens to it, is to see what it is currently comprised of. There have been recent increases in the amount of money being devoted to veteran’s benefits, Medicare and Medicaid spending have increased, and interest on existing debt is going up dramatically, too. Also, for the first time in over six years, the deficit has increased, from 2.5 percent of the United States’ gross domestic product, to 3.2 percent. It ends up equaling a change of over $130 billion. In other words, despite the best intentions of all of the candidates, this is not a situation that is going to go away anytime soon.

To whom is the national debt owed? This is a great question, but first we need to ask, what is the national debt? When the government takes out a loan, how do they do it? With bonds, mostly. When treasury bonds are sold, that it debt. And this is why the Federal Reserve is so important—it keeps an eye on how much debt is outstanding and how it impacts internal policy. It isn’t the U.S. going to another country and asking for a loan, as is easy to imagine. With that in mind, the U.S. national debt is comprised of Social Security trust funds (about 16 percent of the debt), Federal Reserve banks (about 12 percent of the debt), Chinese held bonds (about 8 percent of the debt), Japanese held bonds (7 percent), and money tied up in American mutual funds (about 6 percent). In other words, the debt is owed widely back to the United States, it is just being held in accounts where the borrowed money can grow faster than it is gaining interest.

Debt is not the best thing in the world. Everyone can agree on that. Owing money to others creates an obligation to them, and this can cause tension. Even the 8 percent of the debt that is owed to China has created considerable headaches. As that debt is being called in, it has the power to drastically increase inflation in the U.S., and could cause tension outside of the economic realm, too. However, it is not the dire strait that is often imagined in the news.

Now to the meat of this discussion. How can you profit off of this? First, watching how the Fed acts can give you clues. When debt needs to be increased, interest levels go up as this makes bonds more attractive. Some brokers, like Nadex, allow you to take out predictions on what the Fed’s actions will do in the form of binary options. This can be a strong idea if you have a firm understanding of how this works. Next, look at the things impacted by Fed moves, like the major indices and the U.S. dollar. Finally, if you want to diversify outside of binary options, look for opportunities that pop up, such as buying stocks when they are down after a rate increase, or by hedging your positions by purchasing the bonds themselves. All of these ideas will help you to increase your profits over the long haul and add safety to your money.

Comments are closed.