THE DEBT DELUSION: WHY AMERICA'S

ECONOMY ISN'T WHAT IT SEEMS

On Wall Street, everything is great until it's not. Everything is under control until it's not. This is a basic fact. Today, the U.S. economy is in very sorry shape. Total debt—private and public—has hit an all-time high, higher than before 1929, higher than World War II. This is an important point to understand because the public debt statistics are not released by the Commerce Department. To be specific, the total level of debt is not released; government debt is released, but not the total level of debt, and that has to be manually computed using Federal Reserve statistics.

In early 2025, President Trump launched a trade war against the rest of the world. America has been in a state of total crisis in terms of trade for a long time. In 1980, it was the world's largest creditor, a position it held since 1916 in World War I. Since then, America has become the world's largest debtor. America can't make the products it needs; it's running a staggering $800 billion trade deficit that stretches out as far as the eye can see. It's not at all clear that Trump's tariffs are going to help in the near term because it will take a long, long time to restore the industrial capacity that was sent overseas. What Trump's tariffs are doing is raising costs for the U.S. consumer and for U.S. businesses in a very dangerous manner. It's not just raising costs; it's disrupting the supply chain. So, this is a very dangerous situation.

At the same time, the restoration of student debt collection is another extremely damaging situation. Counterbalancing this is that the U.S. government is running a staggering $2 trillion deficit, which is highly stimulative. So, people say, "Well, the economy is doing okay." You should say, "We should certainly hope so, or we're borrowing two trillion dollars we don't have to artificially inflate it."

It's also important to understand that Trump's so-called budget cuts or Mr. Musk's so-called budget cuts are nonsense. There is no evidence that these cuts are going to have any major impact. The net increase in government spending is significant because of the huge increases in military spending. So the deficit is headed to go up, not down. Let's repeat that: up, not down. And there's a lot of evidence that Mr. Musk's so-called cuts may actually cost the government money rather than saving it money, due to the lawsuits that are reversing these cuts and due to the fact that so many of these cuts have created chaos rather than progress. So, let's understand: the budget deficit goes on as far as the eye can see. The tax bill and its so-called cuts are a bunch of nonsense. They're talking about cutting Medicaid, which is crazy; it's going to hurt the poorest people, and the main cuts don't even kick in until after the 2026 elections. Think about it: if these cuts are so great, you'd think they'd want to have them kick in now. But the tax cuts kick in now; the budget cuts for Medicaid kick in later. So that's a charade. The basic debt situation under Trump is not getting better; it's getting worse. The economy is getting worse; it's not getting better. Meanwhile, Wall Street parties away. So something here is amiss.

We also want to talk about the growing instability of the U.S. credit markets. From 2001 to 2022, you had an extremely aberrational period in U.S. credit markets. For almost the entire period, except for a small period of time (2007 to early 2008), you had negative real interest rates. This was achieved by a number of factors. One factor was the wholesale, progressive destruction of one U.S. industry after another by shipping U.S. factories overseas and replacing them with much lower-cost factories in other countries, which drove down many consumer price indexes. Another factor, particularly after the 2008 financial collapse, was the decision by the Federal Reserve to flood money via quantitative easing into the large banks in this country. That did lead to inflation of stock prices, luxury real estate, and other matters, but didn't really trickle down to consumer inflation. It helped consumers buy homes at lower interest rates, but this was basically a glorified form of welfare for the rich; that's what it was. Another factor was the willingness of foreign creditors such as China to accept debt, specifically U.S. government debt, in return for the U.S.'s inability to compete in world trade. So China, Japan, and other places built up larger and larger portfolios of American debt.

From 2001 to 2022, there were hardly any serious tax increases other than a small one in 2012. All the U.S. government's problems, from the Iraq War to the global financial bailouts of 2008 and 2009 and the huge bailouts in the world of COVID, were put on the national credit card. Now, by 2022, the runaway spending of Biden on all sorts of political boondoggles, specifically hundreds of billions of dollars for education and local governments which later turned out not to be needed under the guise of COVID funding, finally sent inflation up at the consumer level. 2022 was a kind of "end of the age" as interest rates began to rise. Now, Wall Street has assumed that we're just going to go back to "happy days are here again." This is extremely unlikely because of the overall huge debts that are bearing down on the entire American economy.

So you have to ask questions about the hundreds and hundreds of billions, really trillions, of dollars built up in debt by private equity to buy up whole sections of the U.S. economy. What's particularly scary is their purchase of essential services such as emergency rooms and things like that. Since these companies are private, we really don't know what's going on with their finances; that's not clear. Now, if we didn't have enough trouble there, these same private equity characters are now getting into private credit. You see, there's a reason why banks are regulated: they're regulated so we can keep track of what's going on. Who is standing behind private credit? Well, we really don't know. They have some convincing press releases, some good interviews on CNBC, but we really don't know. So this is a further element of instability.

And we also have another sort of dark pool of the derivatives markets, whose level of danger is unclear. Some people say they're not dangerous, but it's really not clear. It's not clear how they would react this time to huge fluctuations. This is not clear. Even worse than all this is the emergence of speculative nonsense, specifically Bitcoin, a commodity that is worth absolutely nothing, that is now being pitched by leading investors for trillions of dollars in assets. What's going to happen when people find out this is worthless? Who's going to bail that out? So all of this raises red flags and reasons for caution. It doesn't mean a reason for panic, but it means taking a more cautious approach to what's happening and to think through who would be likely to benefit from a global credit crisis and who would likely be hurt by one.