Economist Nassim Taleb Warns of Soaring Debt’s ‘Death Spiral’ for U.S. Economy

“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. 

“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. 

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. 

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.

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.  

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. Taleb maintained that preventing the debt spiral would take “something to come in from the outside, or maybe some kind of miracle.”

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. 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. 

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.

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.

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. 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.

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.

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.

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Featured Image Credit: Shutterstock / Anton Gvozdikov.

The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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