WALL STREET IS SOUNDING THE ALARM ON U.S. DEBT THIS TIME, IT´S WORTH LISTENING / THE WALL STREET JOURNAL

Wall Street Is Sounding the Alarm on U.S. Debt. This Time, It’s Worth Listening.

‘You are going to see a crack in the bond market,’ warns Jamie Dimon. He has plenty of company.

By Spencer Jakab

Illustration of Uncle Sam’s hand holding a red top hat with stars, asking for money. Illustration: ELENA SCOTTI/WSJ, GETTY IMAGES

“Is the U.S. Going Broke?”

Featuring an illustrated Uncle Sam with pockets turned inside out, that was the cover story of America’s most influential news magazine…in March 1972.

Sounding the alarm about a debt crisis has been great for companies shilling gold coins and fishy financial products but has made smart, sincere people look silly when nothing happened—financial markets’ equivalent of Y2K.

So why are several suddenly worried? 

Because the math is getting daunting with interest on the debt blowing past $1 trillion annually and Washington acting recklessly. 

Even people who have issued past warnings deserve a second (or third, or fourth) hearing. 

Hedge-fund manager Ray Dalio does have something to sell—his book, “How Countries Go Broke,” out Tuesday. 

But the world’s 172nd-richest person is hardly staking his reputation on royalties, and his arguments are compelling. 

Dalio told Bloomberg he gives America “three years, give or take a year” to avert an economic “heart attack.”

Peter Orszag, chief executive of investment bank Lazard and a former budget director, wrote last week that “those who bemoaned the unsustainability of deficit spending and debt levels” back during his time in government “seemed to cry wolf—a lot.”

Now he’s worried, too, because the wolf is “lurking much closer to our door.”

The package of tax-and-spending measures sent to the Senate, now officially called the One Big Beautiful Bill Act, could act like budgetary wolf bait. 

It would add around $3 trillion to debt levels over the next decade compared with existing estimates and $5 trillion if certain temporary features were made permanent, according to the nonpartisan Committee for a Responsible Federal Budget.

For perspective, federal interest this fiscal year already will be more than the defense budget and more than Medicaid, disability insurance and food stamps combined.

Moreover, the Congressional Budget Office’s estimates assume that the bond market will not only tolerate a surge in spending but become more relaxed about it with lower yields. 

Consider if the yield on the 10-year Treasury note stayed at today’s level of around 4.4% for the coming decade. 

Then the CRFB estimates it would add another $1.8 trillion in interest costs over that period.

And what if yields surge instead in a vicious cycle? 

JPMorgan chief Jamie Dimon warned on Friday of the consequences: “You are going to see a crack in the bond market, OK?”

Yet the bond market isn’t exactly collapsing, even if 30-year yields recently hit a postcrisis high. 

So who are you going to believe, millions of fairly relaxed investors or some wealthy pundits? 

Another hedge-fund manager, Paul Tudor Jones, calls the paradox an economic “kayfabe,” a term from professional wrestling. 

Those who know that the numbers aren’t sustainable are happy to suspend disbelief while the show continues.

Treasury Secretary Scott Bessent reiterated this past weekend that the U.S. will never default on its debt. 

But it doesn’t have to: Rapid inflation would accomplish the same thing if the Fed had to ride to the rescue through a measure called fiscal dominance. 

What is the tipping point for the bond market to go from mild anxiety to the sort of concern that feeds on itself? 

Former International Monetary Fund chief economist Kenneth Rogoff, an authority on debt crises, explained in April that they “are never a matter of simple arithmetic.”

“Almost every country default—either through outright default or high inflation—occurs long before debt calculus forces it to,” he said.

Despite Dalio’s guesstimate, knowing when doomsayers will be proven right is impossible. 

Consider Stein’s Law: “If something cannot go on forever, it will stop.” 

(Contrary to urban legend, that line wasn’t uttered by Ben Stein, who played the boring economics teacher in “Ferris Bueller’s Day Off,” but by his father, Herb, an actual economist.)

Life comes at you fast.