"The Debt Spiral That Ends in Dollar Destruction:
6 Hard Truths America Can No Longer Ignore"
By Nick Giambruno
“Whenever governments are granted power to purchase their own debt, they never fail to do so, eventually destroying the value of the currency.” – Ron Paul
Let’s take a step back and look at the big picture so we can assess the US government’s financial situation, where it’s likely headed, and what these trends could mean.
Observation #1: It’s Politically Impossible To Cut Spending: Among the biggest expenditures for the US government are so-called entitlements like Social Security and Medicare. It’s unlikely any politician will cut entitlements. On the contrary, I expect them to continue growing. That’s because tens of millions of Baby Boomers - about 22% of the population - will enter retirement in the coming years. Cutting Social Security and Medicare is a sure way to lose an election.
The interest on the federal debt is already the second-largest federal expenditure. In a matter of months, it’s set to exceed Social Security and become the biggest expenditure.
With the most precarious geopolitical situation since World War 2, National Defense - another large expenditure - is unlikely to be cut. Instead, defense spending is all but certain to increase. President Trump has proposed increasing it from $917 billion to $1.5 trillion. The ongoing war with Iran guarantees military spending has nowhere to go but up, way up. The Pentagon has requested an additional $200 billion for starters for the Iran war.
Different types of healthcare and welfare programs also make up a considerable part of the federal budget and are unlikely to be cut. In short, efforts to reduce expenditures will be meaningless unless it becomes politically acceptable to make chainsaw-like cuts to entitlements, national defense, and welfare while reducing the national debt to lower the interest cost.
In other words, the US would need a leader who - at a minimum - returns the federal government to a limited Constitutional Republic, closes the 128 military bases abroad, ends entitlements, kills the welfare state, and repays a large portion of the national debt. However, that’s a completely unrealistic fantasy. It would be foolish to bet on that happening. Here’s the bottom line. The government cannot even slow the spending growth rate, let alone cut it. Expenditures have nowhere to go but up - way up.
Observation #2: Ever-Increasing Debt Is the Only Way To Finance Deficits: When faced with a choice, politicians always choose
the most expedient option. In this case, that means issuing more debt rather than making tough budget decisions or explicitly defaulting. Consider the recurring debt ceiling farce in the US Congress, which has been raised over 100 times since 1944.
In any case, don’t count on increased tax revenue to offset these increases in federal expenditures. Even if tax rates went to 100%, it still wouldn’t be enough to stop the debt from growing.
According to Forbes, there are around 902 billionaires in the US with a combined net worth of about $6.8 trillion. The US federal government spent around $7 trillion in FY 2025, and will almost certainly spend a lot more in FY 2026 and beyond. Even if the US government confiscated 100% of billionaire assets through a wealth tax, it wouldn’t cover even a single year of current federal spending. And even after confiscating all billionaire wealth, the US government would still have to borrow more than $200 billion to cover FY 2025 spending.
Here’s the bottom line: increasing taxes, even to extreme levels, isn’t going to change the trajectory of this unstoppable trend - even slightly. The truth is, no matter what happens, the deficits will not stop growing, nor will the debt needed to finance them. The growth rate is not even going to slow down. It’s going to increase. That means interest expense on the federal debt will continue exploding higher.
Observation #3: Over Half of US Treasury Debt Matures by 2028: This year, nearly $10 trillion of US Treasuries will mature. And every bond that comes due has to be refinanced at today’s much higher rates - locking in substantially larger interest costs for years. What used to roll over quietly can now only be rolled over at roughly double the interest cost seen in 2022.
That’s what the chart below is really showing: the easy-money era is over. The “free money” party ended, and now the bill for the last round of stimulus has to be carried - and paid. More than half of America’s debt will mature by 2028. Every time US debt is refinanced at higher rates, it adds interest costs to the deficit—costs that have to be financed with even more debt issuance, compounding the problem.
It’s worth noting that about $6.6 trillion of the $9.6 trillion maturing this year - roughly 69% - are short-term T-bills. That’s typical in a debt crisis. As demand for long-term bonds weakens, investors gravitate to short-term instruments like T-bills instead of 10-year notes and 30-year bonds. It’s the same pattern you see in emerging-market crises. The market shortens maturities as conditions deteriorate. Only a fool would want to lend a bankrupt government money for the long term.
Observation #4: An Ever-Growing Interest Expense Fuels the Debt Spiral: Annualized interest on the federal debt exceeds $1.2 trillion and is surging higher. That means more than 23% of federal tax revenue is going just to service interest on the existing debt.
Ray Dalio is one of the world’s most successful hedge fund managers. His success is due to his consistent ability to get the Big Picture right. He recently said this: “We are at a point in which we are borrowing money to pay debt service. When you keep having debt growth faster than income growth, that means you have debt service encroaching on your spending, and you want to keep spending at the same time. As that happens, there is a need to get more and more into debt. It accelerates. We are at the point of that acceleration. We are near that inflection point.”
The financial position of the US government has been gradually deteriorating for decades, so it’s not surprising that many people are complacent. They’ve long heard about the debt problem, and nothing has happened. However, it is now reaching the tipping point. That’s because the US government is now borrowing money to pay the interest on the money it has already borrowed, as Dalio noted. Politicians are adding more debt to solve the problems of prior debt. It’s creating a self-perpetuating doom loop.
The federal debt’s interest cost is already higher than the defense budget. It’s on track to exceed Social Security in the coming months and become the biggest in the federal budget. In short, the skyrocketing interest expense has become an urgent threat to the US government’s solvency.
Observation #5: Surging Interest Expense Forces Fed To Ease Monetary Policy: The soaring interest expense threatens the solvency of the US government and forces the Fed to cut interest rates, buy Treasuries, and implement other monetary easing measures to try to control interest costs. In the bond market, when demand for a bond falls, the interest rate rises to entice buyers. However, the federal debt is so extreme that allowing interest rates to rise high enough to entice more natural buyers could bankrupt the US government because of the higher interest costs.
For context, when Paul Volcker raised interest rates above 17% in the early 1980s the US debt-to-GDP ratio was around 30%. Today, it’s north of 123% and rising rapidly. Today’s higher debt load and accompanying interest expense are why meaningfully higher interest rates are not on the table; the growing interest expense could lead to the US government’s bankruptcy. That’s a big reason President Trump has stacked the Fed with loyalists who will push for lower interest rates and pursue easy-money policies.
Further, the world isn’t hungry for more US debt right now. It’s an inopportune moment for lackluster demand because supply is exploding higher. If higher interest rates are off the table and cannot entice more natural buyers, and foreigners aren’t going to step up to the plate, who will finance these growing multi-trillion dollar budget deficits? The only entity capable is the Federal Reserve, which buys Treasuries with dollars it creates out of thin air.
Observation #6: Ever-Increasing Currency Debasement Is Inevitable: The skyrocketing interest expense forces the Fed to implement interest cost control policies, which inflate the money supply and debase the currency. As that happens, prices rise. That causes the US government to spend even more on Social Security and welfare to keep up with the cost-of-living increases. The same is true of defense and other government spending, which adjusts upward for rising prices.
Former Secretary of Defense Robert Gates recently said, “Barely staying even with inflation or worse is wholly inadequate. Significant additional resources for defense are necessary and urgent.” This compounds the problem because, as government spending rises to account for rising prices, that increased spending can only be financed with more currency debasement. That’s why ever-increasing currency debasement is the inevitable outcome of the US government’s debt spiral. It’s a self-perpetuating doom loop from which they cannot escape.
In short, the only way the US government can continue to finance itself is for the Fed to create ever-increasing amounts of fake money. It brings to mind the phrase: “You can’t taper a Ponzi scheme.” Financial commentator Max Keiser originally said these simple yet profound words.
A Ponzi scheme is an unsustainable scam that relies on a continuous influx of new money to keep it going. The scheme collapses if the flow of new money slows down or tapers. Many believe the Federal Reserve is running what amounts to a giant Ponzi scheme. That’s because the US government’s obscene spending and skyrocketing debt have reached an inflection point. The whole system will collapse unless the Fed pumps an ever-increasing amount of new fake money into the system. It’s like being on a runaway train with no brakes.
Ludwig von Mises, the godfather of free-market Austrian economics, summed up the Fed’s dilemma: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
The US government will not voluntarily “abandon credit expansion,” as Mises puts it, because Washington is dependent on issuing increasing amounts of debt to pay for the ever-growing costs of Social Security, national defense, welfare, and interest on the federal debt. That means their only choice is to debase the US dollar by ever-increasing amounts until, as Mises puts it, the “final and total catastrophe of the currency system involved.” It’s like a drug addict who needs to keep raising his dose to get the same effect… until he dies of an overdose."
