The white smoke blew out the chimney at the Fed building in DC, Chair Powell came out with his briefcase which he opened with a flourish and a spark of lighting and pronounced that he would do nothing.
Though of course, it is how he does nothing that matters. The Fed announced in a deep resounding voice with great solemnity, that there was growing uncertainty around the economy.
Furthermore, the great orator pronounced that there might be a 50 basis point rate cut in the future. And raising a finger to quiet the crowd after that bombshell – The Great Fed Head declared that it would lower its 2025 growth outlook, and – wait for it – revise the 2025 inflation forecast upward.
The crowd shrugged and shuffled off to sell more real estate and buy more gold.
Debt Bomb
The real concern isn’t interest rates or inflation, it is the national debt. Of course, we’ve been worried about this for as long as I knew what it was. Reagan was blasted with tripling the national debt back in the 1980s. But back then there were people still alive who suffered through the Great Depression and so had direct exposure to bank runs and the like.
The problem with debt is servicing the debt, that is paying the interest. Once the annual interest exceeds federal tax revenue you are in big trouble.
As of now, the U.S. national debt is around $35 trillion (March 2025), with annual interest payments projected at $892 billion for fiscal year 2024, per the Congressional Budget Office (CBO).
Federal tax revenue for 2024 is estimated at $4.9 trillion. That puts interest at about 18% of revenue—significant, but not yet overwhelming. Historically, revenue averages 17-18% of GDP, though it should be noted that interest costs have spiked recently due to higher rates (the average rate on federal debt is now around 3.1%) and ever-growing debt.
The critical threshold comes when interest payments surpass tax revenue—say, when that $4.9 trillion is eclipsed by interest alone.
Projections suggest this could happen if debt and rates keep climbing unchecked. The CBO forecasts debt held by the public reaching 122% of GDP by 2034 ($48 trillion or so, assuming GDP grows to $39 trillion), with interest costs hitting $1.8 trillion annually by 2035 if rates average 4% and debt balloons to $40-50 trillion. Revenue, if it stays at 17.5% of GDP, might reach $6.8 trillion by then—meaning interest would be 26% of revenue, still below 100%, but edging closer.
The tipping point accelerates if rates rise further (say, to 5-6%) or if economic growth stalls, shrinking revenue. At $50 trillion in debt with a 5% average rate, interest hits $2.5 trillion. If revenue doesn’t grow beyond $5-6 trillion (due to recession or tax cuts), interest could approach 40-50% of revenue by the 2030s. If debt hits $40-45 trillion and rates are at 7% over a long period of time, interest could eat up 60-100% of revenue.
What happens then?
The government can’t just default—it borrows in its own currency. Instead, it faces a "doom loop": borrowing more to pay interest, driving debt higher, and jacking up rates as bond markets demand higher yields for risk.
This crowds out spending on Social Security, defense, or infrastructure. In this scenario tax hikes or spending cuts become inevitable but politically brutal. The people would already be feeling the pinch and would elect whatever politician would promise them free stuff. We’ve seen this play out in Argentina for the last century until they financially had enough a few years ago.
The game is to reduce the debt without paying for it. The Fed wants inflation to erode debt value by printing just enough money so that the people don’t grab their pitchforks. The risk of hyperinflation is always looming.
The debt’s real limit isn’t a fixed number but a perception: the full faith and credit. When investors lose faith, yields spike, and the debt spiral tightens.
Yet we live in a world where Japan’s at 250% debt-to-GDP with low rates and no collapse—yet the U.S. spends more and taxes less constantly digging the hole deeper.
A plausible trigger for a debt bomb might be $50-60 trillion in debt by 2040 with rates at 6% or higher which would push interest past $3-4 trillion against a $6-7 trillion revenue base. Without growth or reform, interest could exceed revenue by mid-century. Short of that, it’s a slow choke—less for programs, more for bondholders.
There is no reason to think anything will change until it has to, and by then the Dow Jones will be over 100,000, the average house will cost $2 million and the price of gold will be a heck of a lot higher than it is now.
All the best,
Christian DeHaemer
Outsider Club
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