United States of Bankruptcy
Updated: 2026-09-15 09:10:12Our policy here at Predator Research is to avoid commenting on politics because, for the most part, the entire political enterprise is devoted to manufacturing outrage in order to distract the masses from the real business of exercising power, but the prevailing narrative is creating major problems for the market and needs to be addressed.
Treasury Secretary Scott Bessent recently said something incredibly foolish in response to questions about an incredibly foolish proposal by the red faction of the clown brigade in Washington DC. It's election season, and the chattering hopefuls are flooding the news with ideas they believe will get them elected.
The leader of the red clowns recently suggested paying a $5000 bribe to every adult in the USA if his faction is granted control for the next two years. The blue clowns have rightly suggested that this proposal is nonsensical, but aren't bothering to explain why because their plan is to spend as much or more in order to offer universal health care for your vote. All of this has upset market participants and interest rates have risen materially in recent weeks.
Mr Bessent's foolish comment was that the federal government can easily avoid the looming debt crisis by growing the economy at a mere 3% in real terms. Completely delusional.
Let's look at some numbers. In the period between April 1, 2025 and March 31, 2026, US GDP grew from $30,042.113 billion to $31,865.721. This represents and increase of $1,823.608 billion or 6.075% for the year. Over that same period the total outstanding debt rose from $36,214.309 to $39,065.421 billion, which is an increase of $2,851.112, or 7.872%. In other words, the debt grew by $1,027.504 billion more than GDP. That's a delta of 56.344%. The only thing you're growing your way out of is solvency.
At this point, red clown supporters will point out that the "One Big Beautiful Bill" passed in mid 2025 puts more money in consumers pockets and will increase the growth rate for GDP, allowing the vast array of tax cuts to both pay for themselves and solve the budget problem. Standard supply side theory in action!
Problem is, it isn't working. The Big Beautiful Bill came into effect on January 1, 2026. From January 1 to June 30, 2026, GDP rose from $31,422.526 to $32,486.066 billion, representing an increase of $1,063.54. Over the same period, the debt increased from $38,514.009 to $39,462.398, or $948.389 billion. Lazy financial news pundits were quick to point out that the debt declined relative to GDP by $115 billion in the first half of the year, lending support to the supply side argument that all those tax cuts were worth it, but they failed to account for the simple reality that taxes come due in April. From January 1 to June 30, 2025, GDP rose from $29,825.182 to $30,485.729 billion or $660.547 billion while debt actually declined $7.136 billion from $36,218.605 to $36,211.469. The back half of the year is when spending materially outpaces tax collection. The third quarter results for 2026 are going to ugly. VERY ugly.
For the supply sider's tax cut model to produce the expected result, spending needs to be cut to a proportional degree. It wasn't. Discretionary spending has become an immaterial component of the budget. The DOGE commission tried and failed to find trillions in waste, fraud and abuse because there isn't any. Entitlement spending, the so called "third rail" of politics, continues to grow at an unsustainable rate. Combined with defense and interest expenses, these non-discretionary outlays exceed taxes collected.
The federal government currently collects 17% of GDP in taxes and spends 23%, a 6% annual gap. As a point of reference, in 1936, when America was presumably great, the entire federal budget was <6% of GDP. Today the government borrows more than it spent in total back then. We cannot get back there from here without erasing the new deal programs. Today's annual interest payments represent almost 4% of GDP alone.
Which brings us back to the $5000 vote bribe scheme. Napkin math puts the total cost of said payments at around $1.2 trillion, or 3.7% of GDP. It isn't going to happen because, contrary to popular belief, the government cannot actually print the money it needs. Economists and pundits simplify a complex process by saying print, but there is no mechanism for printed dollars to enter the economy. The thing that gets printed are treasury debt securities, which are sold to investors in exchange for cash, which is then spent on whatever. Those investors are already looking at the math outlined above and demanding higher interest rates in exchange for the ballooning risk of inflation/default. If the red posse follows through on their proposal, mortgage rates and AI data center bond yields are going to explode higher, killing the bull market and sparking a debt crisis.
It might seem like I'm picking on the red team here, and I am, but not because I favor the blue. The reds are spouting their bullshit all over the news at present, so I'm highlighting their proposal, but the blue will fare no better when they get off the sidelines and start promoting their spending plans. The whole business of government needs a material restructuring. Taxes need to rise or spending needs to decline by 3% of GDP. At that point Mr Bessent's 3% growth rate might realistically pay down the debt over time. Unfortunately, none of that is going to happen and in 2032, when the Social Security trust fund is depleted, the American Experiment will end in failure, because the political clowns make too many promises that they have no ability to keep.
Sources:
https://fiscal.treasury.gov/accounting/monthly-treasury-statementhttps://fred.stlouisfed.org/series/GDP/