Mark Spitznagel, co-founder and CIO of private hedge fund Universa Investments, is known for generating juicy returns for wealthy investors with his patented tail risk protection strategya form of market “insurance” that pays well in times of Economic and market turmoil. But when it comes to his generation’s obsession with debt, Spitznagel sounds more like a social activist than a hardline money manager.
The 53-year-old has been warning about this for years National debt– which recently skyrocketed $34.5 trillion– is not sustainable. He argues that when this rising debt is coupled with decades of loose monetary policy that has pushed up asset prices, growing piles of consumer debt, and companies’ penchant for relying on credit in times of stress, a “Tinderbox economics“, which could burst into flames in no time. It is the “greatest”. Credit bubble in the history of humanity,” said Spitznagel Assets last year 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 always, 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 people who aren’t even alive today. How is that right?”
For Spitznagel, the USA’s unsustainable national debt is completely unethical. He argues that it is simply a way to pave the way to the next generation when problems arise, particularly problems that could affect investors’ market returns. Of the expenses billion To bail out banks too big to fail during the Great Recession of 2008 or to pump trillions into the economy to prevent a terrible recession during the COVID era, the federal government has been able to do so for decades To save parts of America from economic troubles and difficult times. These spending policies, typically accompanied by near-zero Federal Reserve interest rates, have helped boost markets and facilitate an incredible post-recession recovery in the 21st century. That’s a good thing in the short term, but avoiding worst-case scenarios through high deficit spending comes with costs for future generations, according to Spitznagel.
It is essentially 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 not unfounded. A mix of expensive 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 country’s ability to repay its debts, hit a record 123% in January IMF.
Things got even worse in 2023, economists at the Wharton School at the University of Pennsylvania found study that the US has about 20 years left for “corrective action” to address 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 very unlikely scenario and could not happen for decades, the effects of rising national debt are already being felt to some extent. The federal government is expected to spend $870 billion, or 3.1% of GDP, on interest payments on its debt this year Congressional Budget Office – more than the entire Defense Department budget. Over the past two decades, the U.S. has spent an average of just 1.6% on debt service, about half of this year’s projections. And the CBO predicts the government’s interest spending will rise to 3.9% of GDP over the next decade. To illustrate how extreme the interest payments are, note that U.S. federal, state and local 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 next decade Peter G. Peterson Foundation, a conservative think tank. That’s money that could be spent on a number of far more useful things.
For Spitznagel, this expensive reality means that politicians must act immediately to get the US national debt back on a sustainable path. But unfortunately, he predicts, it may already be too late to do so painlessly.
The hedge funder argued that after decades of loose monetary policy and rising debt, it may be impossible for the next generation to end the debt cycle without suffering severe consequences in the form of an epic recession. This means that when today’s youth come of age and a crisis occurs, they will likely need to “do more of the same” and accumulate debt to avoid worst-case scenarios.
But you can’t take out loans forever, says Spitznagel – and he fears that we are long past the point at which we have to make cuts. “You can argue that at some point it stops working,” he said.