“The Black Swan” author Nassim Taleb has stated that the U.S. economy is at the precipice of a “death spiral” over increasing debt and political mismanagement.
A Dark Announcement
At an event for investment management firm Universa Investments on Monday, economist and author Nassim Taleb issued an ominous warning, claiming that increasing U.S. debt will likely result in a “death spiral” for the government and economy.
Debt and Death
“A debt spiral is like a death spiral,” he told attendees. Taleb pointed to record high U.S. debt, which reached $34 trillion this month, as a tipping point for the economy.
Disaster on the Horizon
In his opinion, if Congress continues borrowing and spending at the same rate, the national debt has the potential to devastate the U.S. economy in the near future.
The Experts Know
Taleb referred to the debt as a “white swan,” i.e., an entirely predictable market risk.
He also posited that experts have been aware of the risk for some time, but debt accumulation has continued and added more strain to the economy.
White Swan vs Black Swan
This is compared to a surprise “black swan” event, which can come out of nowhere.
The white swan debt issue also means that the economy will be more vulnerable to “black swan” shocks than it has been in recent years.
Not the First Time
This isn’t the first time that Taleb, author of The Black Swan and Antifragile, has made worrying predictions concerning the U.S. economy. He also correctly predicted the 2008 financial crisis.
A Gloomy Outlook
He expressed pessimism about the current political system, which he believes has disincentivized politicians from tackling the problem.
The Political System is the Problem
“So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system, eventually you’re going to have a debt spiral,” he told event attendees.
Some Kind of a Miracle
Taleb maintained that at this point in time, it would take “something to come in from the outside, or maybe some kind of miracle,” to prevent the debt spiral.
Expert Warnings
And it is not for want of trying. Experts who have been warned about the risks of increasing debt have, in turn, warned the government.
JPMorgan Chimes in
JPMorgan recently referred to the $34 trillion debt situation as a “boiling frog,” the metaphor being that the government’s failure to act would lead to a slow increase of risk until it is too late to combat the problem.
The Fed Was Warned
These warnings have been coming in for years, ramping up in 2022 when the Federal Reserve Bank began raising interest rates to the highest levels since 2001.
Interest Rates May be Cut
While the Fed is expected to cut interest rates at some point in the coming year, they are unlikely to drop to a sustainable level for some time.
High Debt Costs Will Continue
Cutting those rates probably won’t stop record-high debt costs according to Goldman Sachs, which they predicted will peak in 2025.
$10.6 Trillion Over Ten Years
The Peter G. Peterson Foundation, which works to increase public awareness of impending challenges to the U.S. economy, has also released a report predicting that over the next decade, it will cost $10.6 trillion to pay off national debt interest.
Clash Between Debt and Inflation
Commentators agree that the dual issues of inflation and increasing debt could come together to stall economic growth altogether. This would be a worst-case scenario but not an unlikely one.
Issues in Congress
These economic issues come about as Democrats and Conservatives in Congress continue to clash over funding and are split on several issues, including aid to Ukraine and Israel and immigration policies.
No Budget Yet
So far, a budget has not been passed for the fiscal year due to these ongoing agreements, which means it is still unclear what approach the government will take to the debt issue.
Government Shutdown Avoided
As of last week, a bill has been passed to avert a partial government shutdown, so Congress will have another month to hash out the budget.
Biden’s New 401(k) Rule: Employers Frustrated as Retirement Planning Responsibilities Shift
The latest Biden administration rule on 401(k) plans is reshaping how employers manage retirement plans. It’s a complex scenario requiring a fresh understanding of fiduciary duties and provider relationships. This rule aims to protect employees but also imposes new responsibilities on employers. Biden’s New 401(k) Rule: Employers Frustrated as Retirement Planning Responsibilities Shift
Elon Musk: New Immigration Bill ‘Enables Illegals to Vote’
Elon Musk is calling for prosecutions after the text for a new senate bill on immigration was released. Musk accused the new bill of “enabling illegals to vote.” Elon Musk: New Immigration Bill ‘Enables Illegals to Vote’
Colorado Officials Reject Sanctuary City Status, Warn Against ‘Dangerous Game’
With increasing numbers of migrants arriving in Colorado, public officials have rejected any notion of the state becoming a sanctuary for migrants and asylum seekers. Colorado Officials Reject Sanctuary City Status, Warn Against ‘Dangerous Game’
Disney Challenges DeSantis’ “Don’t Say Gay” Rule With a Hefty Lawsuit
Disney is set to appeal its refusal for a lawsuit against Ron DeSantis, who stripped the company of its rights for disagreeing with the Governor’s views on the teaching of sexual orientation in classrooms. Disney Challenges DeSantis’ “Don’t Say Gay” Rule With a Hefty Lawsuit
Trump on the Attack as 21 Million Americans Flock to Obamacare, Biden Pushes Forward
An unprecedented surge in health plan enrollments has reignited former President Donald Trump’s commitment to dismantling the program should he secure the GOP nomination once again. Trump on the Attack as 21 Million Americans Flock to Obamacare, Biden Pushes Forward
The post U.S. Debt Concerns: Economist Nassim Taleb Predicts Economic ‘Death Spiral’ first appeared on From Frugal to Free.
Featured Image Credit: Shutterstock / Marina-Kruglyakova.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
