Hedge funder Mark Spitznagel says there’s “something immoral” about America’s reliance on debt – and future generations “will bear the burden”

The 53-year-old has been warning for years concerning the recently exploding national debt $34.5 trillion– is just not sustainable. He argues that when this rising debt is coupled with a long time of loose monetary policy that has driven ever higher asset prices, growing piles of consumer debt, and businesses’ penchant for counting on credit in times of stress, it creates a “tinderbox economy.” arises that would immediately burst into flames. It was the “biggest credit bubble in human history,” said Spitznagel Assets last 12 months he warned that “there will be consequences.”

With that in mind, we decided to ask Spitznagel, who has two teenagers of his own, what this credit bubble will mean for future generations and what he thinks about his cohort’s debt-laden legacy. As at all times, he didn’t take any hits.

“We were just incredibly irresponsible to future generations. They had no part in this, and yet they will bear the burden of it,” the hedge funder said Assets. “We should all feel really, really bad about this – really bad about this. It will hurt individuals who aren’t even alive today. How is that right?”

For Spitznagel, the USA’s unsustainable national debt is totally unethical. He argues that it is just a solution to pave the solution to the following generation when problems arise, particularly problems that would affect investors’ market returns. Of the expenses billion To bail out banks too big to fail throughout the Great Recession of 2008 or to pump trillions into the economy to stop a terrible recession throughout the COVID era, the federal government has been capable of achieve this for a long time To save parts of America from economic troubles and difficult times. These spending policies, typically accompanied by near-zero Federal Reserve rates of interest, have helped boost markets and facilitate an incredible post-recession recovery within the twenty first century. That’s an excellent thing within the short term, but avoiding worst-case scenarios through high deficit spending comes with costs for future generations, in line with Spitznagel.

It is basically a “massive, massive transfer of wealth from the future,” he argued. “There is simply something immoral about government debt – that individuals can take on debt for their own benefit, only to have it paid by people who had no say in that debt.”

Spitznagel’s concerns about rising U.S. debt are usually not unfounded. A mixture of high-priced spending bills, COVID-era bailouts and vulnerabilities tax income have helped increase the U.S. national debt by 28% since 2020 alone, from $26.9 trillion to over $34.5 trillion. That means the U.S. debt-to-GDP ratio, which serves as an indicator of a rustic’s ability to repay its debts, hit a record 123% in January IMF.

Things got even worse in 2023, economists on the Wharton School on the University of Pennsylvania found study that the US has about 20 years left for “corrective action” to handle national debt before it reaches 200% of GDP. After that, “future tax increases or spending cuts could in no way prevent the government from defaulting on its debt,” they warned.

While a US default is a most unlikely scenario and couldn’t occur for a long time, the consequences of rising national debt are already being felt to some extent. The federal government is predicted to spend $870 billion, or 3.1% of GDP, on interest payments on its debt this 12 months Congressional Budget Office – greater than your entire Defense Department budget. Over the past 20 years, the U.S. has spent a median of just 1.6% on debt service, about half of this 12 months’s projections. And the CBO predicts the federal government’s interest spending will rise to three.9% of GDP over the following decade. To illustrate how extreme the interest payments are, note that U.S. federal, state and native governments combined only spent $810 billion on education in 2023.

In total, net interest payments on the federal debt will total about $12.4 trillion over the following decade Peter G. Peterson Foundation, a conservative think tank. That’s money that could possibly be spent on plenty of much more useful things.

For Spitznagel, this expensive reality signifies that politicians must act immediately to get the US national debt back on a sustainable path. But unfortunately, he predicts, it might already be too late to achieve this painlessly.

The hedge funder argued that after a long time of loose monetary policy and rising debt, it might be not possible for the following generation to finish the debt cycle without suffering severe consequences in the shape of an epic recession. This signifies that when today’s youth come of age and a crisis occurs, they may likely have to “do more of the same” and accumulate debt to avoid worst-case scenarios.

But you may’t take out loans without end, says Spitznagel – and he fears that we’re gone the purpose at which we now have to make cuts. “You can argue that at some point it stops working,” he said.