Post-apocalyptic stories have been all the rage over the past decade. Our imaginations have been captured by TV Series like, “The Walking Dead” and “Fallout.” What would it be like to live in a world stripped of its technological advances and governmental apparatus? Would we devolve into roaming tribes scavenging for resources or running from zombies?
As fanciful as those stories may be, they hit home because many people have a sense that civilization as we know it is fragile. We seem to stand at a precarious precipice that might be breached by a deadly pandemic, nuclear holocaust, or some kind of Biblical Armageddon. Our institutions are under attack and civility has eroded. Is it too far-fetched to think we are standing at the brink of some apocalyptic risks?
This fear is particularly evident in certain financial circles that believe the United States will be reduced to a banana republic as our national debt spirals out of control. We’ll call this event, “Debtmageddon,” for short.
Is there a high probability that our currency will collapse under the weight of our national debt? And when that happens and the US dollar is no longer the reserve currency of the world, aren’t American investors hosed? We may not be running from zombies, but will we be growing green beans in our backyard or bartering for services?
There’s quite a ball of yarn to untangle here, so let’s outline our approach before diving in. We’ll do it in the form of question and answer:
Q1. What is the nature of the deficit/debt problem we face?
Q2. How big is the problem?
Q3. Is the problem solvable?
Q4. What are the possible and likely outcomes?
Q5. How should investors allocate in light of these realities?
While we cannot offer an exhaustive treatment of this subject, my hope is to give you some productive ways to reason through it. Onward…
Q1. What is the nature of the deficit/debt problem we face?
A1. It is probably well-known to readers of this blog that the United States is on the horns of a fiscal dilemma. Namely, we are running structural budget deficits and those deficits are adding to our national debt at an unprecedented rate. Let’s make sure we understand the difference between these two things:
- Budget Deficits: Unfortunately, our government’s budget is not healthy because expenses exceed revenues. Worse, much of federal spending is politically difficult to reduce because the largest line items are tied to mandatory programs such as Social Security and Medicare, while other major categories like defense remain politically sensitive even though they are technically discretionary. The practical result is that large portions of the budget are far stickier than they appear on paper.
- National Debt: The continuous budget deficits create debt that the US government owes to creditors. The US government’s proverbial piggy bank is empty and the government is essentially running up credit card debt to pay its bills.
The exacerbating problem is that government debt is paid back with interest. The US government may not be paying double-digit credit card rates, but even a small percentage of a huge number is a huge number (more on this below).
That is simple enough to understand. But can’t the government just print money to pay its debts? Easy-peasy lemon-squeazy, right?
This is an important point to clarify. The U.S. Treasury does not literally run a printing press to pay its bills. It finances deficits by issuing debt. However, that does not mean fiscal problems can be painlessly solved. If the broader monetary system accommodates those deficits through easier liquidity and debt absorption, the result is not free prosperity but a different form of cost: weaker purchasing power, distorted capital allocation, and pressure on savers. So the problem is not merely whether the government can create nominal dollars. The problem is whether it can finance chronic deficits without damaging the real economy.
So the nature of the problem is not simply that we have a structural deficit or growing national debt. The apocalyptic question is whether there is a point at which lenders to the US Government are no longer willing to lend at preferred “risk-free” interest rates? And what happens then?
Q2. How big is the problem?
A2. Let’s establish a few facts on both an absolute and relative basis. The headline debt number matters, but the more important question for economic consequences is how much of federal revenue and federal spending is increasingly consumed by interest expense and mandatory obligations. That is where debt stops being an abstraction and starts becoming a drag on national flexibility.
Source: OMB Historical Data, CBO Projections, US Treasury, Image generated by Gemini, March 16, 2026
This table deserves its own blog commentary, but I trust you will spend some time mulling it over. I want to first draw your attention to the bottom-line “net interest % of expenses.” This is the percent of the annual budget that is spent on debt interest ALONE. Net interest is now among the largest line items in the federal budget. In common Treasury spending breakdowns, it trails only the largest entitlement categories, which means an enormous share of public resources is now being consumed not by new productive output, but by servicing prior borrowing.
But you might say – no big deal – debt interest expense was relatively high back in 1986 at 13.7% and then it dropped to 8.5% in 2006. I want you to notice something though. Look two rows up at the “Avg. marketable rate.” That gives us an approximation of the interest rate the government was paying on its debt at that time. Notice that in 1986, rates were almost 3x what they are in 2026. In 1986, the rate was about 9.2% and in 2026 the rate is about 3.3%. What that tells us is that our 13.6% net interest expense is much, much worse relative to 1986. If we had interest rates closer to 9%, our net interest expense percent would go from 13.6% to almost 38%!
To put this in perspective, mandatory spending already consumes the majority of the federal budget, and when net interest is added on top, roughly three-quarters of federal outlays are spoken for before policymakers even begin debating the discretionary budget. That is why the fiscal problem is not merely large; it is structurally rigid.
Q3. Is the problem solvable?
A3. Let’s run through some basic high-level options:
- Increase government income through taxation: The thorny problem here is famously described by the Laffer Curve. Namely – that at some upper limit, tax rates become sufficiently punitive and discourage growth and capital investment – which actually DECREASES economic activity and tax receipts. Determining that level is a matter of fierce debate, but I think we can all agree that hiking tax rates creates its own set of social, political, and economic challenges. In a world of tax rates in the 65-75% range, we can intuitively conclude that this would be a massive drag on economic investment and growth. Killing the goose that lays the golden eggs is never a good idea.
- Increase government income through economic growth: Of course, the healthiest way out is to grow tax receipts faster than expenses through a vibrant economy. But this is not a dynamic the government can directly control. The government is not the primary engine of entrepreneurism or productive economic activity. It may help provide a stable context in which healthy markets can thrive, but it is not the primary engine of growth. In fact, it often becomes a barrier to and drag on growth by misallocation of resources. It would be great to see the government largely “get out of the way” so productive capital can be deployed towards more goods and services. Unfortunately, the government is so bloated and internally conflicted that it is going to have a tough time right-sizing.
- Reduce government expenses through cost reductions / fiscal discipline: Is it too cute to type, “LOL,” in a blog like this? Well, too late because I just did. Who is ready to believe we have politicians or an electorate ready to start cutting benefits to seniors, military veterans, or the poor? There is simply no political will at a grass-roots or political level to face the carnage of rolling back entitlements. At least not yet.
- Reduce government expenses through lower interest rates: Could lower rates bail us out? Not in the way many assume. Rates today are not historically extreme, but they are meaningfully above the ultra-low-rate era that helped mask the burden of federal debt. More importantly, Treasury financing costs are not something the government can simply wish downward by decree. U.S. debt must compete with other investment opportunities, and if investors demand more compensation for duration, inflation risk, or fiscal deterioration, borrowing costs rise accordingly.
What we need to understand is that the US government debt issuance competes against other investment options. Investors do not HAVE to buy government treasuries and bonds. They generally do it because of perceived safety relative to other asset classes. But as the perceived risk profile of the US government changes, investors will demand HIGHER rates of return and/or pursue other asset classes. The only way for the government to attract more lenders is to offer increasingly attractive interest rates TO THE LENDERS. This is a long way of saying two things. First, these rates are ultimately set by the market (not the government), and second, we cannot rely on lower rates as a sustainable fiscal solution.
- Ad Hoc Synthesis: In reality, the most likely path is not cinematic collapse but prolonged erosion: somewhat higher taxes, meager real growth, modest trims at the margins of spending, and a larger share of national income diverted toward transfer payments and debt service. That is the real danger. The fiscal crisis may not arrive like an explosion. It may arrive like a slow reduction in growth, flexibility, and productive capital formation.
Q4. What are the possible and likely outcomes?
At this point, you are probably convinced Debtmageddon is a real thing and you may be thinking about starting that vegetable garden and getting a few chickens. I personally think that is kind of a fun idea to pursue anyway, but let’s sit with the problem for a moment.
For the purpose of our thought experiment, let’s agree that the status quo is not sustainable within the next generation. In other words, the inflection point is probably not decades away as it was in 1966. It is likely that we will see broad economic and social consequences within our lifetime. I didn’t include CBO projections in the table above for the sake of space, but let me assure you that they are ugly and unnerving.
I’m going to sketch out three main “bell-curve” possibilities with brief commentary:
| Scenario | Description | Reflections |
|---|---|---|
| “Right Tail” – Elon Musk Utopia | Extreme Optimist – Technological advances in AI and applied robotics will create massive wealth and eradicate poverty as we know it. We all live happily ever after. On Mars. The end. | I happen to believe we will see amazing productivity gains that will create new paths of human flourishing and prosperity. But I think human nature will ultimately continue to disrupt any possibility of utopia. |
| “Base Case” – Japanification | Enduring Stagnation – Government debt and increased taxes will crowd out capital investment and the US will enter a period of slower economic growth and declining global influence over the long run. Policy-makers will enact an ad hoc hodge-podge of strategies to mitigate social chaos. | The most probable outcome. Think of the economic stagnation of Japan and the inter-generational unwinding of the British empire. We will not descend into utter chaos in a distinct moment of time, but our slower growth will make way for emerging rivals to exert more global influence. Wealth disparities will continue to widen. |
| “Left Tail” – Debtmageddon Banana Republic | Extreme Pessimism – The US will suffer some kind of economic-social-political catastrophe, perhaps due to unforeseen black swan events. The US dollar will be replaced as reserve currency and the country will have no choice but to significantly curtail its entitlement programs, causing further social chaos and massive political upheavals. Life as we know it will cease to exist. | Leaving catastrophic Black Swans aside, the mitigating factors here are enduring American exceptionalism relative to global rivals with significant weaknesses. The USA is still the “best house in a bad neighborhood” on a comparative basis. The total latent wealth and untapped resources of the United States gives it far more runway and ad hoc flexibility than other nations. There will be real pain and dislocations, but in the absence of strong global alternatives, this scenario appears unlikely in the intermediate to long run. |
Q5. How should investors allocate in light of these realities?
A5. For the sake of brevity and space, I’m going to call out five major areas to consider:
- Beware broad market indexing: Investing in broad market indexes like the S&P 500, the NASDAQ, and the Russell 2000 have been great bets over the past century. The passive set-it-and-forget-it style of investing is especially attractive when overall economic activity is robust over the long-term. But as capital formation becomes squeezed out by government debt, it is reasonable to expect lower overall rates of return as capital formation is impeded. Betting on American enterprise in the aggregate may not be the worst bet on the table, but there are real Japanification risks that linger over that thesis.
- Beware bonds: Beware long-duration nominal bonds. Treasuries may still serve a role in liquidity management or capital preservation over short horizons, but they are not a magic shield against fiscal deterioration or the slow erosion of purchasing power. A guaranteed nominal return is not the same thing as durable real wealth creation.
- Beware crypto: David Bahnsen (Dividend Cafe) and Steve Tresnan (alt.Blend) have written on this extensively, so I will not do that here. But if I could give a couple of cents on this score… Crypto has not demonstrated the price stability, legal finality, or sovereign backing needed to function as a reliable replacement for fiat money at scale. That does not mean it has no speculative or technological relevance. It means it has not proven itself to be a stable store of value for investors seeking protection from long-horizon fiscal deterioration.
And since we’re being apocalyptic – if I’m wrong about that (and I’m not), you can bet your bottom-dollar that no government with monetary reserve currency status will allow crypto to supplant its own currency. It is one thing for it to play at the margins of market exchange. But the minute an alternative form of money threatens a government with dominant coercive power, you know they will shut it down by force if necessary. Sound money and enduring sovereignty are inextricably bound together.
- Beware precious metals: Let’s play out the left-tail banana republic scenario for a moment. Let’s say Debtmageddon comes. And let’s say that you happen to actually have your physical gold in your physical possession. Do you think in a world that has gone to hell in a handbasket that you are going to transact in gold bars or coins? You’re going to buy eggs with gold bullion? And do you have a militia to keep your gold safe? I’m sorry (not sorry) to be glib, but in a left-tail risk scenario, you’re going to need seeds, bullets, and access to fresh water. Shiny metals aren’t going to do much for you.
Fine, but what about in the Japanification base-case scenario? Aren’t precious metals a good store of value against a currency that has been debased? Empirically, the answer is no. Gold may have episodic value as a crisis hedge or diversifier, but it does not move in a clean one-to-one relationship with dollar debasement or consumer-price inflation. In other words, buying gold is not the same thing as purchasing a precise hedge against fiscal disorder.
- Focus on enduring-growing cash flows/profits: Let me make this as simple as possible. Do you see any world in which people in America stop buying cheeseburgers or coffee? No. Or a world where the United States is not heavily invested in the military? No. Or a world where businesses don’t need critical infrastructure? No. I think you get the idea. There are certain kinds of enterprises that are not only profitable now, but they have a lifespan that appears to be quite indefinite. I’m not denying that there will be creative destruction of certain industries. There will be. But what I’m suggesting is that there are certain kinds of profitable businesses that have an enduring business case through whatever business cycles or political upheavals occur. Rents will be paid, french fries will be eaten, drones will be manufactured, and oil will be drilled out of the ground.
So at the risk of turning this into an infomercial for The Bahnsen Group’s dividend growth investing thesis, I encourage you to sit with reality as we know it. If the base-case risk is not sudden apocalypse but slower growth, periodic inflation pressure, and capital misallocation, then one of the better responses is to own durable enterprises with resilient demand, pricing power, balance-sheet discipline, and enduring cash flows. In a world of fiscal drag, the investor’s task is not to find magic escape hatches. It is to own productive assets that can continue compounding through an environment that is less efficient, less dynamic, and more burdened by public-sector claims on private capital. This is the way.
And FWIW, if we do end up in a Zombie apocalypse, aim for the head. Always the head. And try not to get bit.
“In the long run, we’re all dead.” – John Maynard Keynes
Brett Bonecutter
Private Wealth Advisor
