You folks who’ve followed me for a long time know how much I love movies — and that I draw inspiration from my favorite flicks.
And I especially love this scene from the hit financial drama “The Big Short.”
That quip about a Supercuts haircut and being smarter than then-Fed Chair Alan Greenspan gets me every time.
But it’s the wise comment that “you can’t see a bubble while you’re in a bubble” that we want to look at here today — because there’s a corollary.
You can’t spot a financial disaster until the hammer hits home.
And when the hammer does hit, it causes a lot of damage — and pain.
And that whistling-through-the-air sound you hear is a sledge-sized hammer headed directly for our heads …. thanks to a disaster-in-the-making I’m referring to as America’s Debt Debacle …
Brought to you by Washington’s addiction to debt.
And financial historian Mark Higgins says it’s time for America to take action.
“My biggest concern is that the U.S. has made itself vulnerable to encountering an unexpected catastrophic event, and it will lack the debt capacity to respond effectively,” he told me during several talks this week. “The second major concern I have is that dealing effectively with the U.S. debt requires a change to a mindset that almost no American is familiar with. By far the biggest source of unsustainable spending is entitlements (Medicare, Social Security, and Medicaid), yet it seems few Americans (and certainly few politicians) are willing to admit this fact, much less do anything about it. Dealing with this problem requires the American people to demand material cuts in spending (including entitlements). Otherwise, politicians will continue to cater to short term demands from the electorate, and the United States will continue to careen on an unsustainable path until some type of crisis forces change. That is the reality we are dealing with. And that is the reality that almost nobody is willing to acknowledge.”
Mark knows what he’s saying. He’s the author of the highly acclaimed book Investing in U.S. Financial History: Understanding the Past to Forecast the Future. And he’s joined us before: Back in October, I interviewed Mark about his new book, and what America’s financial past tells us about what comes next for investors.
How bad do things look? At $36.2 trillion, America’s debt load is 123% of gross-domestic product. That’s up in “this-collar-is-feeling-tight” territory. And it compares with other such high debt/GDP ratios as:
China: 288%.
Japan: 264%.
Venezuela: 241%.
Sudan: 186%.
Greece: 173%.
Singapore: 168%.
Italy: 142%.
And Cape Verde: 127%.
Here’s a little more context: Back in 2005, U.S. debt stood at about $8 trillion — roughly 60% of GDP.
The Great Financial Crisis and then the COVID-19 Pandemic helped change Washington’s use of — and view of — debt as a tool, with growing budget deficits now the norm. After pump-priming shortfalls of $3.1 trillion in 2020 and $2.8 trillion in 2021, the U.S. deficit came in at $1.3 trillion in 2022, $1.7 trillion in 2023 and $1.8 trillion last year.
“The problem,” Mark told me, “is that interest payments on the debt now constitute a rather large percentage of the fiscal deficit. In 2025, the interest payment is expected to be $952 billion – which is more than defense spending.
Sounds scary … but this is a problem for the future … and nothing’s happening now — right?
Wrong.
Remember that disaster “corollary” I mentioned? And how I said you can’t see it until the hammer blow comes?
We’re watching this play out in real time. You just don’t realize it.
Are you studying the headlines involving the Department of Government Efficiency (DOGE), created as part of the Trump 2.0 Administration agenda and led by Tesla Inc. (TSLA) CEO Elon Musk?
We focus on wealth building — and not politics — here at Stock Picker’s Corner (SPC). But we follow the important storylines — and watch for important “triggers.”
DOGE is kicking up a lot of dust as it targets wasteful federal spending. The group says it’s saving $1 billion a day – a full-court press that (if successful) would reduce the federal deficit … which, in turn, could reduce the national debt over time.
That’s what we’re watching here in the near term.
But there’s something else you need to put on your “watch list” — the next debt-ceiling debate.
And, true to form, I’m intentionally oversimplifying this.
After the U.S. government hit its congressionally-set debt limit last month, the Treasury Department continued to pay the nation’s bills without borrowing by using "extraordinary measures" — a form of cash management that can’t continue forever.
The so-called “X-Date" — where the country can’t pay its bills — could come this spring or summer, depending on tax revenue and disaster-relief spending. We’ll watch what happens then.
This matters — a lot. High debt loads can lead to perennially high interest rates, high inflation, economic shocks, an inability of the government to respond to real crises, and a “crowding-out” effect that makes it tough for promising companies to borrow, to grow and create new jobs.
What can you do in the here-and-now?
First and foremost, pay attention. Understand what’s happening, why it matters and what investing moves you can make to build wealth and reduce risk.
As a first step, listen to my talk with Mark. He tells us how we got here, shows us how we’re in dangerously uncharted waters and explains how history can show us the right direction to go next.
Mark’s great. And so is his book. And, like last time, I enjoyed our talk.
One last thing.
In preparation for our interview, I got a really nice haircut.
At Supercuts.
Does that make me smarter than Fed Chair Jerome Powell?
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