- The U.S. owes $38 trillion, and can print every dollar of it.
- When you can create the money you owe, does debt even exist?
- The real risk isn’t default – it’s what those dollars will be worth.
- If trust in the dollar slips, inflation hits and markets tumble.
U.S. debt just crossed $38 trillion, almost 125% of GDP. Economists warn of a crisis, yet America has never defaulted in its own currency. Is this really a ticking time bomb, or a misunderstood feature of modern finance?
If a company, for example, issues debt using a paper it can print itself – as much as it wants – what would you call that? Well, companies do it right now. They issue stock certificates, and it’s called equity. So maybe the U.S. federal debt isn’t really “debt” at all. Maybe it’s equity in the United States.
The U.S. Treasury can print as many dollars as it wants to repay the federal debt. There isn’t a scenario in which the United States “runs out” of dollars, because the U.S. government is the monopoly issuer of its own fiat currency. What it owes, it can always create. Sure, Treasury securities do differ from equity: they pay interest and have maturity dates, and markets treat Treasuries as “safe assets,” making them the foundation for all other forms of credit. But conceptually, when the issuer can essentially create the repayment instrument out of thin air, the distinction between debt and equity does seem to blur.
For investors, this question matters deeply — because how the government manages its “debt” ultimately shapes interest rates, inflation, and the value of every financial asset they own. Related: This metric says the S&P 500 Poised For A 40% Crash?
For investors looking to navigate this environment, the Trefis High Quality Portfolio offers a disciplined way to stay ahead of shifting market dynamics. It has significantly outperformed its benchmark – a combination of all 3, the S&P 500, Russell, and S&P MidCap indices—and has generated returns exceeding 105% since its inception. Why is this the case? As a group, HQ Portfolio stocks have provided improved returns with less risk compared to the benchmark index; less of a roller-coaster experience, as demonstrated in HQ Portfolio performance metrics.
The Real Question Isn’t Whether The U.S. Can Pay
Traditional debt involves a real constraint. A company borrows money it does not control and must earn or arrange to repay later. But when a government issues debt in a currency it controls, repayment is never the real problem. The real limits are political and economic: too much issuance can erode confidence or spark inflation. The real question isn’t whether the U.S. can pay, but what those dollars will be worth when it does.
The Consequences Of Printing Money
- Reputation: A loss of trust could weaken the dollar and raise interest rates. The damage comes from credibility, which is the true collateral for U.S. Treasuries.
- Inflation: When the government prints or creates new money faster than the economy produces goods and services, prices rise – reducing the value of every existing dollar. Inflation acts as a quiet tax, spread across all holders of the currency. The burden doesn’t show up as higher taxes, but at the grocery store, in rising rents, and in the shrinking real value of savings.
Considering this, the debate shifts from “Will the U.S. pay?” (yes, with printed dollars) to “What will the dollars be worth when it does?”
How Markets Can Crash
For investors, this framework suggests that U.S. Treasuries are less a bet on the government’s ability to repay and more a bet on its discipline to control inflation. The real risk isn’t default, but the erosion of purchasing power.
If confidence in the dollar weakens and inflation expectations rise, Treasury yields could spike, borrowing costs would climb, and equity valuations would fall. In such a scenario, higher interest rates and tighter financial conditions would squeeze consumers. Defaults on personal loans, auto loans, and credit cards could climb — making banks like JPMorgan, Citigroup, and Bank Of America with large credit card books particularly vulnerable. Real-estate sector could also be hit hard, as rising rates reduce affordability and pressure asset values. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last seven market crashes.
How To Position Yourself In This Climate?
In such an environment, protecting capital and staying flexible becomes as important as chasing returns. Consider strategies such as the Trefis Reinforced Value (RV) Portfolio, which has surpassed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to yield strong returns for investors. Why is this so? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive solution to leverage favorable market conditions while mitigating losses when markets decline, as detailed in RV Portfolio performance metrics. In the face of a potential 40-60% downside, strategies that can “limit losses when markets head south” are especially crucial.