Fortune Nails It
With the Best Debt Crisis Article Yet
The most recent Fortune Magazine features a brief but powerful piece on the debt crisis facing the United States. Senior Reporter Eleanor Pringle’s piece relies on the JP Morgan Private Bank’s outlook for 2026, released Nov. 17, warning Morgan’s high-end clients to “prepare for a structural shift in inflation.” Policymakers may intentionally tolerate higher inflation, causing “the debt burden to shrink over time.” That is, they would “effectively inflate the debt away.”
Making debts inflate away sounds great, but the owners of this vanishing debt pay the price. “Effectively inflating the debt away” suggests a sizable inflationary haircut over the lives of 10- or 20-year bonds, paying lenders back with severely devalued dollars. Intentional inflation (which briefly reached 9% quite by accident in 2022) could easily wipe out half of the original investment. The principal victims would be Americans who naively trusted the full faith and credit of the United States.
This “structural shift in inflation,” aka “financial repression” or “channeling funds from private savers to the public sector,” sounds a lot like fleecing the unwary of their savings.
Beyond the millions of immediate victims, who would be stupid enough to lend to Uncle Sam again? “Fool me once, shame on you. Fool me twice, shame on me.” Any new US paper would be limited to short terms or high interest rates. The dollar’s role as the global reserve currency would be history, and China (among other nations) would exercise greatly enlarged influence over the world economy after the US had bungled it.
In short, this debt “solution” would come at a high price for a long time, compromising the lives of younger and future Americans. Are the political gains from sky-high deficit spending really worth that?
All this assumes a sovereign debt crisis caused by continued borrowing far beyond what Washington can afford. Not just JP Morgan but dozens of economic participants and observers (discussed in many prior posts) assume just that. More tellingly, dissenters no longer exist, at least publicly. I confirmed that with Perplexity yesterday. The question and answer are appended below. I have rarely been less surprised or more discouraged by an answer.
With both parties rejecting fiscal responsibility, the only remaining lever is competition from outside the duopoly. America has, IMO, only one realistic and morally tenable pathway for averting fiscal disaster. It needs a hero, a Perot-like figure willing to enter the snake pit of the 2028 election as an independent Presidential candidate. Anyone who can describe an alternative pathway wins a free Purple Presidency Guest Post
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Nov. 18 dialog with Perplexity
Q: is there any respected observer out there, even one, who has committed to the idea that another 5 years on the current trajectory could be handled without any default or substantial reduction in the value of the dollar?
Perplexity answer: No, there is not a single respected fiscal observer who has publicly committed to the belief that the United States can continue running deficits around 7% of GDP for five more years without facing either a form of default (such as inflationary debt monetization) or a substantial loss in dollar value. Ray Dalio, one of the most visible and respected voices on fiscal risk, has been explicit: he predicts an “economic heart attack” for the U.S. within three years unless the deficit is urgently reduced to more sustainable levels (close to 3% of GDP). He warns that … the U.S. will be forced to choose between sky-high interest rates or aggressive money printing—both outcomes that reflect a sovereign crisis, even if not a technical default.
…
Consensus today is that unless there is a clear bipartisan move to drastically cut deficits—neither party shows signs of doing so—serious fiscal and monetary trouble, including the risk of default or dramatic currency devaluation, is nearly inevitable within the current decade.
To directly answer: not one prominent observer or economist has publicly said that another five years of current deficits can be sustained without crisis. The expectation is, instead, that five more years would take the U.S. into outright fiscal disorder.
Our looming debt crisis calls for a "hero" as much as any national disaster ever has. Decision by indecision ends in the inflated debt calamity. Doing nothing is a decision by Congressional consensus, albeit a very bad one. One strong leader would be preferable to a House and Senate full of apathetic, indifferent politicians without direction.
Any nominations for hero?
I struggle to comprehend where the hero may come from. No Labels' defeat in 2024 shows at least the difficulty if not impossibility of a third-party candidate getting elected to the presidency given the strength of the duopoly. The horror that is the Trump administration will have folks voting Dem in 2026 and probably 2028. So, the pendulum will simply swing the other way. And I can't see Democrats using an argument to raise taxes and cut services in order to address the debt as talking points in either of those elections. If anything, they'll be opening the proverbial candy bag to entice voters into their circle. And with that, you have the next three years.
Perhaps we need to be considering the best way to handle the calamity when it gets here rather than thinking there's any hope in averting it. When we reach that tipping point, what should we, as a nation, do to a) limit the scope and duration of the crisis, and b) create legislation to prevent it from happening again? As for the hero, he or she will need to rise above the crisis and probably not be affiliated with either party since voters will likely blame the duopoly, ignoring our own complicity in allowing this to happen.