- America’s annual interest payments on federal debt have surpassed $1 trillion, straining the budget and spooking investors.
- Rising rates and growing default fears are shaking confidence in U.S. bonds and triggering credit downgrades.
- In times of fiscal uncertainty, protecting your finances with physical gold can provide lasting stability and security.
More Debt, More Risk of Crisis
The U.S. government’s interest payments on its debt have surpassed a staggering $1 trillion annually. That figure is larger than the defense budget and more than the combined costs of Medicaid, disability insurance, and food stamps. This development marks a turning point in the nation’s fiscal stability. And raises major concerns for investors, policymakers, and everyday Americans alike.
Source of Bond Trouble
Every time the federal government runs a budget deficit, it fills the gap by auctioning bonds on the open market. To entice investors to buy these bonds, the government must offer interest, more so when doubts grow about its ability to repay. As debt accumulates, servicing past debt becomes costlier. And sets off a dangerous chain reaction where interest payments compound into future debt. This creates a scenario that some economists now warn may lead to a full-blown economic crisis.
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A Fiscal “Heart Attack” Is on the Horizon
Famed investor Ray Dalio didn’t mince words when he said the U.S. has “three years, give or take a year” to avert an economic “heart attack.” He believes America is approaching a “death spiral”. That’s where debt levels become so high that the only way to sustain them is by taking on even more debt, at even higher interest rates.2
Dalio noted that these warning signs are often ignored by lawmakers until the crisis is unavoidable. “The change is unthinkable—and then it happens suddenly,” he said. 3
Treasurys No Longer Risk-Free?
Ben Harris of the Brookings Institution put it plainly. If the perceived risk of default on U.S. Treasury bonds goes from 0% to even 0.2%, “that is a massive shift” because we are talking about trillions of dollars. Treasurys have long been considered the safest investment in the world. But if markets begin to treat them as risky, the entire financial system could be thrown into turmoil.
This erosion of confidence is already underway. Investors are increasingly turning away from U.S. bonds and looking instead to European and Asian markets for more secure options. In May, the interest rate on a 30-year U.S. government bond spiked to its highest level since 2023. Evidence that markets are beginning to demand greater compensation for taking on U.S. debt.
Downgrades and Death Spirals
The U.S. has already been downgraded by all three major credit rating agencies. In 2023, Fitch stripped the country of its AAA rating. More recently, Moody’s downgraded the U.S. from AAA to AA1. These downgrades raise borrowing costs. And in turn, amplify the chances of entering a debt death spiral.
Power of the Bond Market
President Trump’s One Big Beautiful Bill may not pass. Not because of Congress, but from the bond market. As interest costs soar, investors, not lawmakers, are beginning to dictate the terms of fiscal policy. With borrowing costs rising, even popular tax cuts or spending packages face resistance from a financial system that may no longer tolerate higher deficits.
Events in the United Kingdom offer a sobering lesson. A wave of bond market sell-offs forced the British government to reverse plans for tax cuts. It led to the dismissal of Chancellor Kwasi Kwarteng and the resignation of Prime Minister Liz Truss. Banks like Citigroup openly declared they would continue to punish the UK unless it changed course. That’s the power of the bond market.
What This Means for Americans
Rising federal interest costs don’t just affect Washington, they hit your wallet too. Higher interest rates make everything more expensive. That includes mortgages, credit cards, car loans, student debt, and small business financing. These increased costs ripple through the economy, stifling manufacturing, discouraging investment, and ultimately slowing growth.
The Committee for a Responsible Federal Budget estimates that if the yield on the 10-year Treasury note stays at current levels, it would add $1.8 trillion in interest payments. If yields rise, the damage could be much worse. JPMorgan CEO Jamie Dimon has warned that a surge in yields could “crack the bond market,” prompting panic among regulators.4
A Coming Reckoning
Economists don’t agree on when a full-blown crisis might erupt, but they agree it’s coming. Former IMF economist Kenneth Rogoff noted that most defaults don’t wait for the math to force them. They happen when confidence collapses. “Almost every country default—either through outright default or high inflation—occurs long before debt calculus forces it to,” he said.5
Treasury Secretary Scott Bessent has stated that the U.S. will never default, suggesting it could always “inflate its debt away.” But that solution comes with its own risks: rampant inflation, a falling dollar, and the loss of global trust in U.S. financial leadership.6
Conclusion
With the debt crisis looming, it’s more important than ever to think about how to protect your wealth. As faith in Treasurys wanes and borrowing costs rise, the financial landscape is growing increasingly uncertain.
In times of economic instability, many investors turn to physical gold. Gold isn’t just a hedge against inflation. It’s a hedge against uncertainty, credit downgrades, and the growing possibility of fiscal failure. At American Hartford Gold, we help Americans safeguard their savings with physical gold and silver that you can hold in your hand or place in a Gold IRA. To learn more, call us today at 800-462-0071.
