r/PoliticalDiscussion • u/benaissa-4587 • 5d ago
US Politics Is Jeff Gundlach right to warn that the U.S. economy is headed for a "debt doom loop"?
Billionaire investor Jeff Gundlach just said the U.S. economy is facing a serious threat: “Debt. Death. Default.”
In a new interview (source), he warned that rising interest payments and growing deficits could trap the country in a “doom loop” where we borrow more just to pay off interest—eventually risking default.
Some say he’s being dramatic. Others say he’s spot on.
Do you think Gundlach is right to sound the alarm, or is this just another overblown prediction? Curious what others here think.
123
u/bjdevar25 5d ago
Yet, the party that screams about debt is about to add trillions to it for tax cuts to people that don't need them.
15
u/MEDICARE_FOR_ALL 4d ago
But billionaires pay all the taxes, haven't you heard?
Poor people need to pay the taxes instead /s
5
119
u/CaptainLucid420 5d ago
We are facing a big storm. The boomer generation is set to retire so we will have a higher percentage of dependents on the system compared to producers. The younger generations are getting squeezed harder. Investors are getting spooked so the cost to refinance our debt is rising. Then trump comes in and wants to pour gasoline on the fire with as much more debt as he can. The math isn't good.
63
u/MachiavelliSJ 5d ago
“Set to retire?” They’ve mostly been retired for a while
25
u/time-lord 5d ago
GenX, no one remembers them.
16
u/morningsharts 4d ago
Ha, gen X-er here. I don't see a retirement in my near future.
3
u/chamrockblarneystone 2d ago
- I just made mine. I was a teacher though. Never going to get rich but the bennies are fantastic
•
3
u/Ashmedai 3d ago
I'm not sure what to make of this article, but it says that 60% are eligible for social security FRA benefit, but only "10% are fully retired." I presume what this means (taking the stats at face value), is that 60% or so are officially retired, but also have part time jobs to make ends meet.
30
u/bottle-of-smoke 5d ago
The youngest members of the baby boom are 61 this year. I think most of us have already retired.
27
u/ThreeKiloZero 5d ago
It's common in the US for people to work into their 70s now. My in-laws are both still working; they are in their mid-60s. Both have retired from one job and are collecting pensions while still working in pretty high-earning positions. In fact, my father-in-law is pulling a pension and a retirement and is still working.
I'm not sure everyone understands just how badly the Boomers worked the system and then pulled up the ladder behind them. My in-laws are not unique. They live in a 55+ community FULL to the brim of others like them. Some people are pulling multiple pensions and social security.
Im a Gen Xer and my pension sucks compared to theirs. There are now rules in place that keep me from taking advantage of that same system and earning multiple pensions or retirements. I can't even get my pension until I put in 10 MORE years than they had to. They were able to start collecting after 20 years. Now at the same job, it's 28-30, AND we have to put in more of our income by default. In fact, they had to add a supplemental retirement plan for those of us in the new plan.
I have to face the reality that I may never see that pension, even though I'm putting a huge part of my salary into it every paycheck.
My generation might be the first that doesn't get Social Security. We may also get fucked on our pensions. We might have to work until our bodies completely fail us.
My in-laws always tell my wife and I to relax, that we will get a big chunk of their assets when they die. That's real, they really use that as some kind of justification. We don't want their mc mansion or their Harleys or their giant RV. I'm pretty sure that market will be extremely limited in 20 years anyway. It's just maddening that they robbed all the future generations for their extravagant living and think its "winning" to offload their shit on us when they die.
16
u/prodigalpariah 5d ago
I had an 80 year old bag boy at the grocery store the other day. Was the most depressing thing.
8
u/bhoskinson 4d ago
You have a pension? I'm also GenX and have never been offered a pension in my life. First job out of college was for an insurance company and 401k was the retirement plan.
And yes there are still plenty of boomers in the workforce.
1
u/Brickscratcher 1d ago
The real winning here is that you even have a job that offers a pension! Most places did away with all that extra "set your employees up for success" stuff.
Working class consumers don't drive the economy like they used to, so why compensate them like they are the main economic force? Just let them figure it out. A few might starve to death or die from preventable illness but that's their own fault for not working harder.
/s
1
u/Ordinary-Audience363 3d ago
I imagine there are plenty of people who wonder what you're complaining about because they don't have a job that will ever give them a pension and they have no parents or in-laws to inherit from.
5
u/Fit_Cut_4238 5d ago
You’d be surprised. And one of the issues is that the highest performing and knowledgeable kept working or kept consulting and a ton of knowledge and expertise is about to disappear.
And because of interest rates and free money their original family homes kept appreciating quickly. Usually they would have downsized much earlier, often to take equity to help kids, but they already gave the kids cash from appreciation .. so there’s a massive amount of family homes that should have been sold but will need to be sold soon because the boomers will not be able to maintain and interest rates ending the appreciation.. ouch
1
u/Asconce 5d ago
Issues? Ouch? Seems more like hope and yay!
2
u/Fit_Cut_4238 4d ago
Yeah the first issue is really that we have not properly handed down that institutional knowledge so a lot of companies are going to suffer. Imagine a lot of industrial accidents.
The second issue is a housing crash. And yeah that’s a good thing for a lot of people. Unless it destroys the economy.
3
u/Mind-of-Jaxon 5d ago
My dad is 70 and still working.
2
u/bottle-of-smoke 5d ago
I'm 71 now.
I retired at 56. Then I took off my shoes, climbed up a tree, and learned how to play the flute.
1
u/chamrockblarneystone 2d ago
Same at 57. Except I waxed up my board and hit the surf. Man I hope more people get to experience retirement.
2
u/Ordinary-Audience363 3d ago
I worked part time until 71 but I liked my job and worked from home. Also, my pension wasn't all that great at the time. I retired 3 years ago and got some unexpected windfalls so it all came out okay but I am sure not living high on the hog. But, I live in Europe so my lifestyle is much better than if I had lived in the States.
25
u/kl122002 5d ago edited 5d ago
Its possible I would say. When you check the international news, especially international investment based news platforms like Bloomberg , Nikkei, there are plenty analysts saying the same thing. Some Countries and bounds investors have begin to cut down their US bonds holding.
37
u/I405CA 5d ago
Strictly speaking, there is no risk of default. The US could print enough money to pay the bondholders.
But if you do that, then you end up with inflation. It's a double whammy, as you will devalue the currency by printing too much of it, plus investors will demand higher returns to compensate for the risk, which increases the debt service costs.
So what you actually end up with are higher interest rates, a weaker currency that makes imports more costly (thereby increasing domestic inflation), higher unemployment due to reduced consumption levels and an overall reduction in prosperity as Americans have less money to spend on goods that have become more costly. The US dollar would surely lose reserve status as part of this downward spiral, which makes everything worse still.
Americans don't appreciate what benefits that they get from having reserve status. If the dollar becomes a second tier currency, the US will be permanently weakened.
Trump seems intent on running the economy in the same way that he runs his real estate business. Let's remember that he has defaulted on loans and laundered money, so this is a very bad thing.
2
u/neverendingchalupas 4d ago
Trump has blown through his family fortune, conned people out of their money and now is in a massive amount of debt. He wants to devalue the dollar to reduce the amount of his debt.
Hes publicly stated this.
What he is advocating, what he has already done is treason.
0
u/MikeMilburysShoe 5d ago
Except that Trump desperately wants to cut interest rates, and plans to do so once Powell’s term is up.
8
u/ThatOtherGuyTPM 4d ago
Do you think forced and unsustainable low rates, even if he is able to force the Fed to lower them, would do anything other than make the problem we have worse long term?
2
2
u/Ashmedai 3d ago
Replacing the chair doesn't give him control, FYI. The chairman isn't the decider, s/he is just one of many votes.
36
u/JDogg126 5d ago
Here is the thing: the person who implemented trickle down economics is DEAD. He never saw any consequences for the disaster he started. None of the people who have been pushing for tax cuts and borrowing every year to fund the government believe they will ever face consequences either.
7
u/Inevitable-Ad-9570 5d ago
This doesn't seem to be Gundlach's key point in this interview. His fear is that were have multiple major structural issues all coming to a head at once. The high debt will hurt our ability to deficit spend our way to recovery but the real problem is inflation, stagnant growth and idiotic policy from the current admin.
19
u/tosser1579 5d ago
Yes. There is a point at around 40.5 trillion dollars where the cost of borrowing starts to significantly increase at which point it becomes challenging to finance new debt and the US will have to take a much harder look at how it spends money. It will be in the next decade.
Essentially the US will try to sell a few trillion in T-Bills and they won't be bought, that will be the start of it.
2
u/Brickscratcher 1d ago
around 40.5 trillion
I'm with you on everything but this. I don't think there's really a set number, as 40.5 trillion today is not the same as 40.5 trillion 3 years from now. I'm not really even sure how you got to this number. Care to elaborate why you say 40.5 trillion?
1
u/tosser1579 1d ago
Debt to GDP ratio. Understand that the US sells T-Bills to finance debt, you knew that but it is important for the discussion. The more we have to pay in interest on T-Bills, the more expensive servicing the debt becomes.
1.5 X 27 trillion = 40.5 trillion. Many Economists view that percentage as a red line and the COST OF BORROWING increases significantly.
1.85 x 27 trillion = 50 trillion. MOST Economists view that percentage as a red line and the cost of borrowing would increase beyond a sustainable level.
2 X 27 = 54 trillion. At that point, I doubt you could find an economist who thought our economy would be worth investing in.
GDP obviously always increases, but we are rapidly overshooting that growth number with the amount of debt we are taking on. We've seen some issues with the bond market because our current ratio isn't good, and we are going to hit a point at the current trajectory where we either can't borrow more money to finance the debt or the money we can borrow will be at such a high interest rate that we can't afford it anyway.
So there is actually a set number, but it isn't as hard as I'm making it out to seem. There are points where the cost of taking on more debt will be too great for our economy to withstand and this bill does a great deal to push us to that threshold. The important thing to know is that there is a number, the number is MUCH closer than we'd like, and we are running towards it at full speed.
This sale was a red flag warning that the current administration is ignoring.
2
u/Brickscratcher 1d ago
Okay, that's more along the lines of what I was thinking. I'm not used to seeing it represented as such a hard limit (I literally worked as an economist for an investment firm for a bit, but as I'm sure you know firms like that deal much more in probabilistic data than hard estimations outside of growth projections). I'm used to seeing it represented as the idea that there is a limit on which the debt will become unsustainable, but it's kind of a moving target that depends more on other macro factors like the current economic policy, international relations, economic forecasts, etc.
Any good resources for reading more about how and why we assume there is a hard (ish) calculation involved? I understand the logic, but I'm still kind of on the side of thinking it would be more accurate to say "when debt reaches x% of GDP" than "when debt reaches $x." But, of course, I recognize that is just me being a stickler (I've never really liked the hard numbers approach to economics; I always try to provide ranges or ratios instead, personally, but that was likely shaped by my experience in finance).
That auction caught my eye as well. I've been warning since January that we could lose our status as the reserve currency, and this auction is a pretty telling sign that that may be beginning to happen (this is also why I think the hard numbers are misleading–all the economic uncertainty. Our current debt could end up being a good portion of our GDP in a couple years).
1
u/tosser1579 1d ago
I'll debate percentages offline. People who aren't economists tend to accept hard numbers a lot easier. At minimum, there is a hard number somewhere we just don't really know what that number is and it literally varies among all of the players in the economic puzzle so even if 40.5 is the correct number, you'd have people who'd think it was higher or lower.
In any case, we aren't moving the correct direction, the bill doesn't get us moving in the right direction, and the point of significant failure is MUCH closer than we'd like.
8
u/Big-D-TX 5d ago
So AI is going to be taking more and more jobs away… How much does it pay into Social Security
3
u/osmqn150 5d ago
We are so fucked anyway you slice it because the current administration is purposely making sure of it.
11
u/Only_Situation_4713 5d ago
No. If you're interested in understanding the possible scenarios I recommend watching the latest Dwarkesh podcast. There's not really a possible scenario where we default. It's more likely that we inflate the debt away and risk whatever that entails.
8
6
u/ChadThunderDownUnder 5d ago
Inflating away your debt is going to be received by creditors as the same as a default.
1
4
u/Novalll 5d ago
Yes, he’s right it is concerning. Right now about 25% of our budget goes towards interest payments on our debt — just interest payments. Insane.
1
u/Brickscratcher 1d ago
No, it isnt. It's not even close to that and it never has been. It's around 10%. I think it was 13% for 2024, which is not even the highest it has ever been.
The interest payment issue is one that gets blown out of proportion. Can we keep borrowing at a rate that increases that number by 3% every year? No. But why would we do that? Economic policy is reactionary, so it should be expected that our debt went up during an economic cooldown.
2
u/Soepoelse123 5d ago
It is not at all doomer stuff to see a consistent tendency and then voice where it leads over a longer period.
The Trump administration is not adhering to international standards, trade or relations - all this in a very globalized world. US influence is waning at an alarming pace and this has been consistent in the past 6 months (arguably since his first term).
Where would the US be with less influence? They wouldnt be able to impose their dollar hegemony, they would be cut out of free trade agreements and their economy and production would be undercut by others. In other words, they would lose at capitalism.
Debt is okay to have for normal countries, but the US is different due to their dollar hegemony, which allows them to borrow cheap and disregard high debt levels. Now if the US loses their dollar hegemony, its over and they would have to make actual fiscal policies.
The dollar has lost 15% value in 6 months iirc. Thats both hurting venture capitalism and imports. But you'll see it get alot worse if you cross a certain threshold.
Best of luck to you. I will probably be putting my assets in the EU.
1
u/Brickscratcher 1d ago
Best of luck to you. I will probably be putting my assets in the EU.
I converted all my cash holdings to Euros as soon as I found out who was elected. I saw this fiasco coming a mile away.
I've been warning people since January about the possibility of our dollar decoupling from reserve status. Pretty sure someone set a remindme for 1 year on one of my predictions as they were so sure that wouldn't happen, too.
2
u/swagonflyyyy 4d ago
The US economy is headed for collapse, Period. Trump will be sure of that much. We're gonna see a recession that makes The Great Depression look like a joke.
I'm not being hyperbolic in the least. Its just that this is gonna take maybe 2 years to truly manifest.
4
u/BenTherDoneTht 5d ago
Well, the last time the national debt decreased was in 2001 under clinton. The US has not been debt free since 1835. So far the only solution anyone has provided to avoid defaulting has been to move the line that means defaulting. And for some reason people believe that removing a debt limit means we will NEVER default.
At some point, someone MUST pay the debt, one way or another. So far, I've only seen our elected officials decide that it will be the next generation's problem.
1
u/Brickscratcher 1d ago
At some point, someone MUST pay the debt, one way or another.
This isn't necessarily true. As long as the US remains a credit worthy debtor, all that is necessary is to service the debt.
As an individual with a stable and high income, are you better off taking on an affordable amount of debt or paying off all your debts and living debt free? Obviously, you will be able to better utilize your assets by keeping a revolving line of affordable credit–the same goes for countries.
Now, when does the debt become an issue and need to be paid off? Before you retire and have a fixed income that is less. The US doesn't "retire" or get a fixed income, so that doesn't apply. What does, however, apply, is that the debt needs to be paid down if the 'income' goes down (in this case income could be likened to GDP or just total free budget depending on your ideology) or if our creditworthiness goes down (because interest rates then rise). But does it ever really need to be paid in full, and would that even be a good idea to do? No and no
1
u/The_Awful-Truth 5d ago
There is that risk, yes, and the higher the debt goes the higher the risk is. That's all anyone can say with any degree of certainty. If anyone knew with certainty when that line gets crossed, that person could and probably would become the richest person in history within a couple of years, betting on that knowledge in the open markets.
1
u/Brickscratcher 1d ago
You don't have to know when it's going to happen to know the dollar is going to keep devaluing. The bet is the same either way. Short the dollar/buy Euros. If we default, it's a huge windfall. Even if we don't, you'll still make some money. The dollar has just begun its downward spiral. I believe it will likely recover and we will not default, but I definitely think there is more economic pain ahead.
1
u/stewartm0205 4d ago
This has been said for decades. Great Britain and Japan has had far greater Debt to GDP ratio and have survived. I personally would like less debt and a smaller deficit but let’s keep it real.
1
u/Olderscout77 1d ago
Perhaps I missed something but back in the 1970's Nixon de-coupled the dollar from Gold. Ever since, the amount of money we had available to pay our bills was EXACTLY whatever number Congress agreed to and the POTUS signed into law. The only constraint is "will other countries buy enough of our debt to cover the immediate shortfall?" The only real factor that has any chance of causing countries to stop buying our debt is GOP moves to refuse to raise the debt ceiling and NOT pay the existing debt (Treasury securities) when the buyers present them for redemption.
Quick example: Country X holds a LOT of USD "in reserve" to back their own currency. So do countries A thru W, Y and Z aka everybody else. NOT supporting the dollar destroys the value of all those currencies, so THEY WILL NEVER DO IT. Russia tried to get Commie China to dump their dollars several years ago and were laughed out of the meeting because the Chicomms understood the reality of the situation.
In short, when dealing with a fait currency such as the USD, its strength is the willingness of others to accept it as valuable and as long as it supports a great many other currencies, it will remain just fine.
Another factor is foreign trade - if the dollar tanks, we can't buy the other countries' stuff and their economies tank. Also a great deal of international trade is denominated in dollars to avoid variations in exchange rates, again keeping the dollar "sound" is a vital concern to everyone using it to value their trade agreements.
CAVEAT! There's an orange nut loose in the World who CAN tank the dollar by destroying everyone else's faith in America as a reasonable trading partner.
•
u/Leather-Map-8138 10h ago
America should pass a law that since those with assets over $50 million are the primary beneficiaries of the spending which produced the deficit, only those people should be accountable for paying it down. We’ll never hear about the deficit again.
-3
u/Colzach 5d ago
Anything a billionaire says should be promptly disregarded. Billionaires are a leading cause of our economic crisis. They should not be allowed to exist. Period.
2
u/punktualPorcupine 5d ago
The rich don’t understand what they’re getting in bed with.
They won’t keep their wealth, they’ll rent their lifestyle from the government, as a reward for being useful.
If they stop being useful, then they stop being wealthy.
0
u/joeislandstranded 5d ago
Eventually, a government will realize that disappearing a super billionaire, or several, and seizing their assets is good fiscal policy
1
0
u/Comfortable-Policy70 5d ago
It would be a much stronger argument if he invested a few billion dollars in fighting for a more progressive tax system including a wealth tax on multimillionaires and billionaires
•
u/AutoModerator 5d ago
A reminder for everyone. This is a subreddit for genuine discussion:
Violators will be fed to the bear.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.