In late June, Ray Dalio reported on a trip he made to Washington, DC to meet with Congressional leaders of both parties to discuss debt and deficits. What Mr. Dalio learned confirmed what he and others who have studied this subject for years already know: nothing will be done to alter America’s debt trajectory until the situation causes a crisis. Politicians from both political parties told Mr. Dalio the following:
· They believe we are likely to have an economic crisis unless we reduce the Debt/GDP ratio to 3% from its current level of 6-7%.
· Dropping that ratio to 3% will require a combination of spending cuts and tax increases.
· They can’t publicly advocate for these changes because they would be voted out of office.
So while our political leaders recognize the problem, they are prevented from solving it by their constituents. This is part of a larger pattern of people voting against their best interests on all types of issues that affect their lives. Their understanding of those interests is distorted by ideology, short-termism, and ignorance (actively aided-and-abetted by politicians and media). There are few if any truly independent and public-spirited intellectual leaders like Mr. Dalio in a position to speak the truth about important issues, leaving public discourse in the hands of those seeking personal or political gain from their participation in trying to solve the nation’s problems. We live in a selfish, not a selfless, age.
Mr. Dalio proposes cutting federal spending by 4%, increasing tax revenue by 4%, and lowering the real interest rate by 1% to lower the deficit to 3% of GDP. Standing in the way of such a solution is all of the behavior we witnessed that led to passage of the Big Beautiful Bill that the Congressional Budget Office argues will increase the deficit by over $3 trillion over the next ten years (above the projected ~$2 trillion annual deficits) based on a static scoring model and that the Trump Administration argues will lower the deficit by a couple of trillion dollars based on a dynamic scoring model. Frankly, either forecast is largely irrelevant and leaves the federal deficit approaching $50 trillion between 2030 and 2034, a number that raises the debt-to-GDP ratio to ~120%, the annual servicing cost of the deficit well ove $1 trillion, and the annual deficit well over $2 trillion. That leaves open the question of how long buyers of U.S. Treasuries will wait before demanding a significant hike in interest rates to continue funding the U.S. government. When (not if) that happens, all of the debt and deficit numbers cited will worsen and accelerate the timetable for a crisis for which our political system is incapable of responding.
The term TINA used to refer to the idea that there was no alternative to stocks as an investment when bonds offered very low yields during the ZIRP/QE days. We are now, sadly, living in political version of TINA – a world that offers no alternative to governing ourselves into a severe financial crisis. This explains Elon Musk’s high level of frustration (even despair) and desire to start a third political party focused on addressing debt and deficits. He’s far from alone in his despair but he’s likely to find that just as money can’t buy love, it also can’t convince people to vote in their own best long-term interests. His frustration level is only likely to intensify as the problem he seeks to address worsens in the years ahead.
It’s not that the deficit is an unsolvable problem. It’s that we lack the political and moral will and courage to solve it. And we will pay an unfathomable price for not making a serious effort to try.
I think you have known about this fact for quite a while now. I am not that smart but have understood since post GFC that we are on a march to ruin. However, this whole hot mess has gone over for almost a decade more than I thought it would.
I read a prediction over 2 decades ago the US Debt would double about every 8 years and the crisis point would arrive in the 2020s. The prediction was from Egon von Greyerz, formerly of Matterhorn but now Von Greyerz gold. Indeed the deficit did almost double from 5.7 Trillion in 2001 to 10 T by 2009. He said it would double again by 2018 and it absolutely did; to 20T by 2017! He then said it would DOUBLE again to 40T by 2026. Well here we are in 2025 and we are already at $37 Trillion!!!!!! I would suggest that if we do see a recession starting this year as some continue to claim, the Government will easily spend another 1-2 Trillion to address it. Mr Egon Von Greyerz suggests the fuse is most definitely lit and we are unlike to see the next doubling without collapse. His view is that only gold will save you.
My Swiss based Wealth advisors (who deal only in precious metals now) say the same. They have been advising for about 4 years now to put 50% of one's wealth into gold. They are now saying that 80% is essential and to ensure NO wealth is stored within your tax domicile.
Michael should clearly nail his own flag to the (investment) mast for his readers. We probably only have another few years to go before it all goes pear shaped. When that happens, the Government, ANY Government will do what it has to preserve law and order and attempt stabilize the collapse. Social Security and Medicare will be drastically cut. Taxes will drastically rise. People with wealth, (that will include anyone who is a HNW investor and not just the VHNW ones) will find they have a large target on their back........
To quote the young and incredibly sharp Lyn Alden: NOTHING STOPS THIS TRAIN
Gold maybe as a store of wealth but is there also a chance that the dollar gets devalued as a reserve currency, that some form of non-government stablecoin takes its place. I’m watching Peter Thiel’s new stablecoin bank. The GENIUS Act is the first step of a real shift. I’m worried about pensions and target date funds with bond liability. Most people I talk to worry about Social Security but don’t consider what happens as first Medicaid and then Medicare lose funding.