Mark Spitznagel, co-founder and CIO of private hedge fund Universa Investments, is known for generating huge returns for wealthy investors with his patented tail risk hedging. strategya type of market “insurance” that pays out large sums in times such as: economic and market turmoil. But when it comes to his generation’s obsession with debt, Spitznagel sounds more like a social activist than a solid money manager.
The 53-year-old has been warning for years that: national debt—Recently soared $34.5 trillion—That’s unsustainable. He said this increase in debt, when combined with decades of easy monetary policy that has pushed asset prices higher than ever before, rising consumer debt and the tendency of businesses to rely on credit in times of stress, “tinder box economy” could cause an uproar in an instant. It’s “the best” credit bubble in human history,” Spitznagel said. luck “It will have consequences,” he warned last year.
With this in mind, we asked Mr. Spitznagel, who has two teenagers himself, what this credit bubble means for future generations and how he feels about his contemporaries’ debt-ridden legacy. I decided to ask if he was there. As usual, he pulled no punches.
“We have been incredibly irresponsible to future generations. They played no role in this, but they will still be responsible for this,” the hedge funder said. . luck. “We’re all supposed to feel really, really bad about this. It’s like we feel really bad. It’s going to hurt people who aren’t alive right now. How about that?”
For Spitznagel, America’s unsustainable federal debt is completely unethical. He argues that this is just a way to pave the way for the next generation whenever problems arise, especially those that could harm investors’ market returns.from expenses billions of For decades, the federal government has forced large swathes of the United States to bail out banks that were “too big to fail” during the Great Recession of 2008 and pump trillions of dollars into the economy to prevent a severe recession in the coronavirus era. It has been successful in preventing financial distress. A time of trial. These spending policies, typically in tandem with near-zero interest rates by the Federal Reserve, have helped the juice market and enabled its incredible recovery after the 21st century recession. That’s good in the short term, but Spitznagel believes avoiding the worst-case scenario of massive deficit spending will come at a cost to future generations.
It is essentially a “massive wealth transfer coming from the future,” he argued. “Public debt is, quite simply, immoral: individuals incurring debt for their own benefit and having people who have no say in that debt repay it.”
Mr. Spitznagel’s concerns about America’s growing debt are not unfounded.A big spending bill, a COVID-19 relief package, and a vulnerable situation mix. tax revenue These helped increase the U.S. national debt by 28% from $26.9 trillion to more than $34.5 trillion since 2020 alone. As a result, the U.S. debt-to-GDP ratio, an indicator of a country’s ability to repay its debts, reached a record high of 123% as of January. international monetary fund.
To make matters worse, economists at the Wharton School at the University of Pennsylvania have discovered an economic crisis in 2023. study The United States has about 20 years of “corrective action” left to fix its national debt before it reaches 200% of GDP. He then warned, “No matter how many tax increases and spending cuts we make in the future, the government will inevitably default on its debts.”
Although it is a highly unlikely scenario that the United States would default on its debts, something that has not occurred for decades, the effects of the growing national debt are already being felt to some extent. According to the newspaper, the US federal government is expected to spend $870 billion (3.1% of GDP) on debt interest payments this year. Congressional Budget Office — more than the entire Pentagon budget. Over the past 20 years, the U.S. has spent an average of just 1.6% on debt repayments, about half of this year’s forecast. And CBO projects that government interest payments will increase to 3.9% of GDP over the next 10 years. To illustrate how extreme the interest payments are, it should be noted that the federal, state, and local governments in the United States will spend a total of just $810 billion on education in 2023 .
Over the next 10 years, total net interest payments on the federal debt will be about $12.4 trillion, according to the paper. Peter G. Peterson Foundation, a conservative think tank. That’s money that could be spent on many far more beneficial things.
For Spitznagel, this costly reality means politicians need to take immediate action to put the U.S. national debt back on a sustainable path. Unfortunately, he predicts, it may already be too late to do so painlessly.
The hedge funder believes that after decades of easy monetary policy and soaring debt, it may be impossible for the next generation to break out of the debt cycle without the severe consequences of an epic recession. insisted. This means that when today’s young people reach adulthood and are hit by a crisis, they are likely to “do more of the same” accumulating debt to avoid the worst-case scenario.
But you can’t keep renting forever, Spitznagel said. And I worry that we are long past the point where we have to cut back. “At some point it could stop working,” he says.
This story was originally Fortune.com