The US Cannot Pay Back Its National Debt — Here's What That Means for Your Investments
You’ve probably heard the warnings. America’s debt is out of control. The country is heading for a financial cliff. Politicians on both sides have been using it to score points for years, and somewhere in the middle of all that noise, you’re trying to figure out what it actually means for your money.
Most of what gets written about US national debt investing is either so reassuring it puts you to sleep, or so alarming it sends you running for the exits. Neither one helps you make better decisions with your money. That’s what I want to do here.
So let me walk you through what’s actually going on. How the debt problem works. Why the fixes people keep proposing won’t solve it. What happens to the broader economy if it keeps spiraling? And most importantly, what it means for you as an investor and what you can do about it. Because there is a lot you can do. Some investors built wealth during the worst financial crises in American history. This is exactly the kind of environment where knowing what you’re doing really pays off.
How the US Government Actually Gets and Spends Money
To understand the debt problem, the first thing you’ve got to do is look at how the government actually gets money and spends it.
It's Not a Business
Some people think the government is just like a business. It has income and expenses. You could think of it that way, it’s not a terrible way to think about it. But it really isn’t a business.
It’s a government. It doesn’t have income. Its money comes from money it takes from other people who made money. In a republic, we call those taxes. And those taxes are imposed by the people on themselves, through their representatives. The problem is that the taxes people have agreed on are nowhere near enough today to pay for the things their representatives have voted to buy, things like healthcare, defense, Social Security, and plenty of other expenditures.
The Numbers Don't Lie
In fiscal year 2024, the government collected about $4.9 trillion and spent approximately $6.8 trillion. For every $10 we pay in taxes, we spend about $14.
Collected: ~$4.9 trillion
Spent: ~$6.8 trillion
Gap: ~$1.8 trillion
And this wasn’t a crisis year. No recession. No pandemic. Just a normal year of the government doing what it always does.
The US government has spent more than it collected every single year for the past 25 years in a row. Every single year. It doesn’t matter which party is in power.
The people voting on the budget are the same people who need to get re-elected. The best way to keep your seat is to deliver for your constituents. The fastest way to lose it is to take things away from them. So the spending keeps going. The gap keeps growing. And every year, we borrow the difference.
Why We Can't Just Raise Taxes to Fix It
The obvious question is: why don’t we just fix it by raising taxes? Great idea. In fact, the idea of raising taxes is very popular with a certain group of Americans.
The Voter Math
About 16% of Americans pay no income tax and no payroll tax at all. Zero. Another 24% pay payroll tax but no income tax. That’s roughly 40% of voters who can vote to raise other people’s income taxes without raising their own. The result? The top 1% of earners now pay about 46% of all federal income taxes collected. One percent of earners. Nearly half the bill.
So Why Not Just Tax the Rich More?
Because it’s been tried. And it didn’t go well.
Rich people can hire very good professionals to help them avoid higher taxes. And if they can’t avoid them, they leave. When Britain had top tax rates pushing 95% on investment income in the 1970s, virtually every major British rock band left the country. Including the Beatles. The guys who literally wrote Taxman. “One for you, nineteen for me, ‘cause I’m the taxman.” They weren’t joking.
When rates get too high, wealthy people stop investing, move, or shelter their income. And the government ends up collecting about the same amount either way.
The Numbers That Prove It
In 1960, America had a top income tax rate of 91%. Income taxes collected that year amounted to about 7.9% of GDP. Today, with a top rate of 37%, income taxes collect roughly 8% of GDP. Almost identical. Despite a massive difference in the rate.
1960 top rate: 91% — collected ~7.9% of GDP
Today’s top rate: 37% — collects ~8% of GDP
Economists call this pattern Hauser’s Law. You can move the rate around all you want. The amount the government actually collects barely budges. You cannot collect your way out of this problem.
Why We Can't Just Cut Spending Either
So what about the other side of the equation? Could we just spend less? Apparently not.
Here’s the thing about elected representatives. They love their jobs. They want to keep them. And the best way to keep them is to point to everything they did for the folks back home like money brought in, programs funded, data centers built.
Every representative knows they’ve got to bring home the bacon. So they play a little game of you scratch my back, I’ll scratch yours when it comes to keeping spending under control.
Representatives who deliver spending for their districts get re-elected
Representatives who cut programs their constituents depend on lose their seats
So cutting spending, while theoretically possible, is practically off the table
That’s not a criticism. It’s just the incentive structure of democratic government. Which means there are really only two options left to cover that gap.
So Where Does the Money Come From? The Two Options Left
Borrow it. Or print it. The US government does both.
Option 1: Borrow It
When the government borrows, it issues bonds, essentially IOUs. Whoever buys them is lending money to the US government in exchange for a promise to be paid back with interest.
As of early 2026, the total debt is approaching $39 trillion. Here’s roughly who’s holding it:
Mutual funds and ETFs: about 15%
Individual investors: about 20%
Institutions such as banks, pension funds, insurance companies: about 21%
The Federal Reserve, essentially borrowed from itself: about 14%
Foreign governments and investors: about 30%
The biggest lenders to the US are people and governments from outside the country. Compared to lending to their own governments, lending to America still looks like a safe bet. At least for now.
Here’s Where It Gets Really Sticky
The debt is growing at almost 6% a year. At that rate, in just over a decade, we’re looking at $70 trillion. The interest on $70 trillion at 5% is $3.5 trillion a year; 70% of everything the US government collects from taxpayers. What’s left might cover defense and most of Medicare. You can forget about Social Security and pretty much everything else.
But they can’t forget about it. They’ve got to keep spending, or they get voted out. Which means more borrowing. It’s like trying to pay off a giant credit card by taking out new credit cards at twice the interest rate.
And if lenders lose confidence, if they decide they need 10% instead of 5% to lend to the US government, the interest payment doubles. From $3.5 trillion to $7 trillion. More than all the taxes collected. Every dollar. Gone before the government spends a cent on anything else.
At that point, you can’t pay the interest. And if you can’t pay the interest, you can’t borrow. So you go to Plan B.
Option 2: Print It
The Fed makes an entry in the accounting ledger. Just like that, money appears available to lend to the US government in exchange for a Treasury bond at whatever interest rate it sets for itself. Problem solved. Right?
Well, not exactly. Printing money doesn’t make the country richer. All it does is increase the money supply so that more dollars are chasing the same amount of stuff. And that makes prices go up. And up. That’s where we go next.
The Real Danger — What Happens When the Debt Spiral Begins
What Inflation Actually Does to Investors
Inflation doesn’t just make groceries expensive. It destroys the real value of everything you’ve saved. Every dollar in a savings account. Every bond. Every fixed income payment you’re counting on in retirement. The number doesn’t change. What it buys does.
And here’s the bind. The normal response to runaway inflation is to raise interest rates. But in a debt spiral, raising rates makes everything worse, because now the government is paying even more to service that debt. It’s stuck. Let inflation run and wipe out purchasing power. Or raise rates and accelerate the debt spiral.
That’s when the debt spiral hits the stock market directly. Rising rates compress valuations. Companies carrying debt see borrowing costs climb. Consumer spending slows. Investors who haven’t thought carefully about what they own start feeling it.
When America Sneezes, the World Catches a Cold
America is the world’s largest consumer. The global economy runs, in large part, on American purchasing power. If inflation erodes that, the ripple effects don’t stay inside US borders. Trading partners slow down. Emerging markets feel the squeeze. There’s an old saying: America gets a cold, the world gets pneumonia. Think about what happens when every major economy gets pulled into that same downward spiral.
Serious investors and economists have been warning about this for years. This is not fringe thinking. It’s the direction the numbers are pointing.
The Scariest Part
There is no real plan right now to fix it. Not one with enough political support to actually get done. The debt keeps growing. The interest payments keep climbing. And the window for course correction gets narrower every year.
But here’s what I want you to take away from all of this. Some investors don’t just survive environments like this. They thrive in them. And that’s exactly what we need to talk about next.
What This Means for You as an Investor
So what does all of this mean for us as investors? It means we need to pay attention. And we need to start thinking more carefully about what we actually own.
The Limits of Passive Investing
Index funds are fine. I've said it before, if you don't want to take the time to learn how to evaluate businesses, long-term index investing is your next best option. But here's the thing about owning an index in an inflationary environment.
An index owns everything. The strong businesses and the fragile ones. The companies that can raise prices when inflation hits and the ones that get hurt by it. When conditions get tough, those two groups perform very differently. And if you own the whole index, you own both.
Not all businesses are equally exposed to what's coming. Some have durable competitive advantages that let them protect their margins and keep generating cash no matter what the broader economy is doing. Others don't. In a stable environment, that difference is easy to overlook. In the environment we're heading into, it becomes very important.
What History Actually Shows Us
Here's the encouraging part.
Warren Buffett's mentor, Ben Graham, lived and invested through the Great Depression. His fund took serious losses in the crash. But his methodology, buying undervalued businesses with strong fundamentals and a margin of safety, is exactly what allowed him to recover fully by 1935 and go on to build lasting wealth through the decades that followed.
He didn't do it by diversifying into gold and hoping for the best. He did it by understanding businesses deeply, valuing them correctly, and buying when fear drove prices down to attractive levels. When others were running for the exits, he was doing his homework. That's not luck. That's a framework. And it's teachable.
How to Invest When the National Debt Is Spiraling — The Rule 1 Approach
So what do you actually do with all of this?
You learn to evaluate businesses. And you buy the good ones when they go on sale. That's the whole strategy. The work is in learning how to do it well.
Start With Rule 1
Rule 1 comes straight from Warren Buffett. Rule #1: Don't lose money. Rule #2: Don't forget Rule 1.
In an environment like this one, that principle matters more than ever. Because the businesses that hold up aren't the ones that look good in a bull market. They're the ones that are genuinely strong underneath.
The Four M's — How We Evaluate Any Business
At Rule 1, we look at every potential investment through what we call the Four M's. Think of it as a complete checklist for deciding whether a business is worth owning.
Meaning — Do you understand this business? Does it align with your values? If you don't understand what a company does and why it will still be doing it in ten years, you have no business owning it.
Moat — Does the business have a durable competitive advantage? A moat is what keeps competitors from taking market share. It's what allows a business to raise prices when inflation hits without losing customers. Businesses with strong moats protect themselves. Businesses without them get squeezed.
Management — Are the people running it honest and owner-oriented? Good management makes good decisions for the long term. In a tough economic environment, that matters enormously.
Margin of Safety — Are you buying it at the right price? Even a wonderful business is a bad investment if you overpay. We only buy when a business is available at a significant discount to what it's actually worth. That discount is your protection if things don't go exactly as planned.
The Big Five Numbers
Beyond the Four M's, we look at five specific growth numbers over the past ten years:
Return on Invested Capital (ROIC)
Sales Growth
Earnings Per Share (EPS) Growth
Equity Growth
Free Cash Flow Growth
All five should be growing at 10% or more per year consistently.
A business that does that across a full decade, through recessions, rate cycles, and competitive pressure, has proven it has something real. That's the kind of business that protects your capital when conditions get hard.
What You Can Control Right Now
You can't fix Washington. Neither can I. The debt is going to keep growing until it can't. That's just the reality we're working with.
But here's the thing. You don't need to fix Washington to protect yourself. You just need to focus on what you can actually control. And as an investor, you can control a lot.
Three Things Worth Doing Right Now
First, understand what you own.
Go through your portfolio and ask yourself:
Do I actually understand these businesses?
Do I know how they make money, what their competitive advantage is, and whether they can hold up when conditions get difficult?
If you can't answer those questions, that's worth knowing now rather than later.
Second, learn how to evaluate businesses on fundamentals.
Not charts. Not predictions. Not what someone on TV is saying. The actual numbers, what the business earns, how it grows, how it's managed, and what it's worth. That's a learnable skill. It takes some time but it's not complicated.
Third, start building a Watch List.
Make a list of wonderful businesses you'd love to own if the price came down to the right level. When uncertainty drives markets lower, that Watch List is what tells you exactly where to look.
Uncertainty Creates Opportunity — If You're Ready
This is something most people miss. A difficult macro environment doesn't just create risk. It creates opportunity. When fear drives prices down, great businesses go on sale. The investor who understands what they own and knows what it's worth can buy a dollar of value for fifty cents. That's the whole game.
But only if you've done the work ahead of time. Preparation is everything.
The Highest-Return Investment You Can Make
I've been investing for decades. And I can tell you that the best investment I ever made wasn't in stock. It was in learning how to think about businesses correctly.
That education compounds. Every business you analyze makes the next one easier. Every decision you make with a clear framework builds confidence. And over time, that knowledge is what keeps you in control of your financial future, regardless of what's happening in Washington.
Ready to Learn How to Invest Through Any Economic Environment?
Everything we've covered in this article points to the same conclusion. The macro environment is uncertain. The debt problem is real. And the investors who come out ahead won't be the ones who panicked or the ones who ignored it. They'll be the ones who took the time to learn how to evaluate businesses properly and had the discipline to act on that knowledge.
That's exactly what the Rule 1 Virtual Investing Workshop is designed to teach you.
What You'll Learn
Over three days, my mentors and I work with you directly through the process in real time. You'll learn how to:
Evaluate any business through the Four M's framework
Calculate a company's real value using the Sticker Price method
Identify businesses with durable moats that can hold up in any economic environment
Build your own Watch List of wonderful companies to buy when the price is right
Know when to buy, and just as importantly, when to wait
