The question everyone is asking
I've had four separate client conversations in the last month where someone brought up the national debt without me prompting it. I generally steer my client families away from economic news and the noise of the media (thirty years of investing horizon override a 0.25% rate move up or down). Though this one deserves attention. What they wanted to know, underneath it, was whether the thing holding the whole system together is quietly running out of road, and whether anybody competent is actually steering, or whether we're all just along for the ride hoping the adults in the room know something we don't.
I think it's the right question, because most of what people read about the debt is written to either terrify them into buying gold or reassure them into ignoring it completely, and neither one is honest. So here's my honest attempt: what actually happens when this goes bad, what history tells us about how it's gone bad before, what we genuinely don't know, and what I'd actually do about it in a portfolio if I had to.
What actually happens
I don’t think this part is explained well generally: a debt problem doesn't resolve with a bang. It resolves through one of three levers, pulled in some combination — grow the economy faster than the debt, cut spending and/or raise taxes to run a surplus, or have the central bank buy the debt and let inflation quietly shrink its real value. Outright default is really a fourth option, and it's mostly reserved for countries borrowing in a currency they don't control. The US borrows in dollars, prints dollars, and its own central bank can buy its own bonds. That is the reason why I believe 'the US will default' is probably the wrong fear. The right fear is slower and less cinematic: rising interest costs crowd out everything else in the budget, which pressures the Fed to keep rates artificially low relative to inflation, which erodes the currency's purchasing power over time. I’m not predicting collapse. I’m describing a process that's already underway.
We're not hypothesizing here, either. Net interest payments on the debt topped $1 trillion in fiscal 2026 for the first time, overtaking defense spending, and the debt-to-GDP ratio crossed 100% during 2025 — something that had only happened once before, briefly, at the tail end of World War II. Historian Niall Ferguson has a name for the pattern: he calls it Ferguson's Law, the observation that once a great power's interest bill exceeds what it spends on its military, decline has historically followed — Habsburg Spain, the Ottomans, the French monarchy before 1789, the British Empire before it wasn't one anymore. That is a pattern, though it is not prophecy. But it’s worth taking seriously enough.
History's answer key
The honest news is that a heavy debt load has resolved in wildly different ways depending on who was carrying it, and none of them looked like the panic-button scenario people picture.
| Episode |
Peak debt/GDP |
How it actually resolved |
Time frame |
What it tells you |
| United States, post-WWII |
~106% (1946) |
Growth plus mild, sustained inflation plus rates held below inflation (financial repression) |
~25 years down to 34% |
You can grow and quietly inflate your way out without ever defaulting, if you control your own currency * |
| United Kingdom, post-Napoleonic Wars |
~200%+ |
Generations of primary surpluses, growth, and an empire's worth of external income |
~100 years |
Even extreme ratios can be worked down — but "worked down" can mean a century, not a presidential term |
| Japan, ongoing |
Highest government debt load of any major economy, ~195% of GDP by one 2026 ranking |
The Bank of Japan owns a huge share of it directly, rates held near zero, debt held mostly at home - though normalizing now |
30+ years and still running |
The "crisis" can simply not arrive on schedule when the debt is owned domestically and the central bank controls the price of money |
| Weimar Germany, 1923 |
N/A — the currency broke first |
Hyperinflation erased the debt along with the currency and everyone's savings |
Months |
The nuclear option: the debt problem vanishes because the money itself stops meaning anything |
| Argentina, recurring |
Varies |
Repeated defaults and restructurings since the 1980s |
Recurring |
Borrowing in someone else's currency, without a credible central bank of your own, takes most of your options off the table |
*The mechanisms in place to do this in today’s economy probably aren’t there. Repression seems like a near impossibility to me because of globalization and macro-influences on the long end of our domestic yield curve. In other words, we were able to force this issue back then, I don’t know how we could do that now.
Does anyone else actually have their act together?
This one I think about a good bit. The dollar's reserve status isn't a trophy the US earned (though post WWII moves were CRITICAL) and could lose to a more deserving competitor. It's a default, held in place mostly by the fact that nothing else is credible enough to take the job. The dollar still makes up about 57% of global central bank reserves, down from around 70% in the late 1990s, but the decline has been slow and the runner-up isn't close: the euro sits around 20%, and it's backed by a currency union with no unified treasury and no common bond market deep enough to absorb the demand (the 2010–12 eurozone crisis exposed exactly that seam.) The renminbi is under 2%, and no reserve manager is going to bet their country's savings on a currency with capital controls and courts that answer to the party. Gold has had a real moment — it hit an all-time high near $5,600 an ounce in January 2026, with central banks buying at unusually high levels — but gold isn't a currency. It doesn't finance a government's deficit or settle trade invoices.
So the actual answer to "does someone else need to get their act together" is: yes, obviously, but nobody's doing it, and there's no credible alternative waiting in the wings to inherit the job even if they wanted it. The real risk isn't a rival currency taking over. I think it's a more fragmented world where no currency is clearly dominant — which is a genuinely different, and I think a messier problem that I don’t see a lot of economists writing about.
What we genuinely don't know
To paraphrase Socrates, I know that we know nothing. Comforting isn’t it? I want to be straight about this instead, because anyone selling you certainty here is selling you something. Nobody knows the timing. People have been calling a US debt crisis since the 1980s, and every single one of them has been early by decades, which in investing terms means they were simply wrong. Nobody knows whether AI-driven productivity actually shows up in GDP growth large enough to change the math. Nobody knows if the Fed stays independent enough (please oh please) to keep inflation in check when the political pressure to keep rates low gets loud, and it's already getting loud. Nobody knows if the resolution twenty years from now looks like any of the historical cases above, or something none of us have thought of yet, because every genuine crisis in history looked obvious only in hindsight. There are very smart people who debate this with different views, and with solid arguments.
This is the part where I think the Socratic instinct actually matters practically, not just philosophically: the goal isn't to eliminate the uncertainty. That cannot be done in life. There are very real and exceptionally meaningful parts of your life that you cannot know are covered the instant you’re reading this (for instance, think about your children’s well being this very second, your parents health, etc.) You’ve learned to cultivate enough acceptance and peace to continue living in a world of uncertainty. You’ve had to. And just like you’ve built a life shrouded in uncertainty with grace and efficacy, a portfolio doesn't require you to have resolved it in order to be okay. Certainty is not on the menu. Peace with not knowing is a skill, and I think it protects you better than prognosticating the unknowable.
The portfolio question
So if this is the mechanism — slow currency debasement rather than sudden default — what actually protects you? Real assets and diversification away from a single currency, I think those are sound strategies. But like everything, there is give and take:
| Asset |
What it actually hedges |
Where it disappoints |
| Real estate |
Rental income reprices with inflation; a fixed-rate mortgage becomes cheaper in real terms as the currency debases |
Illiquid, and rising rates hurt valuations in the short run even while inflation helps the rents — the two effects don't arrive together |
| Gold / commodities |
A direct bet against confidence in fiat currency; central banks bought at a record pace in 2026 for exactly this reason |
Produces no income, and can go through decade-long droughts — gold went essentially nowhere from 1980 to 2000 |
| Foreign-currency equities |
Diversifies you out of a US-dollar-denominated problem |
Most of the developed world has its own version of this debt problem — Japan and much of Europe carry heavier loads than the US does — and currency-hedged vs. unhedged is a decision that can swing your return either way |
Here's my honest take, in my actual voice and not a compliance disclaimer: the right answer isn't to abandon US equities and back up the truck up on gold and international stocks and duplexes because you've decided you know how this resolves. Nobody does. Not me, not the Fed, not the analyst who tells you gold hits $7,000 with total confidence. The right answer is that genuine diversification across asset classes, geographies, and currencies stops being a hedge against one specific outcome and becomes what it always should have been: normal portfolio construction, done because you don't know the future.
Are we missing anything?
Two things. First, people keep asking "will the dollar collapse"? I might frame it differently like this: “will the dollar quietly lose purchasing power for decades, the way it already has?” — a slow leak, not a bang, and slow leaks don't make headlines even though they can cost you just as much. Second, a structural driver in demographics: an aging population pushes Social Security and Medicare spending up on autopilot regardless of who's in office, and that part of the problem doesn't have a political fix on any election's timeline. I think that deserves its own Study piece rather than a paragraph here. Look out for that in the coming weeks.
But the thing I actually want to leave you with is this: the people who are nervous about the debt and the people who've done nothing differently in their own financial life because of it are, in my experience, almost always the same people. Worry that doesn't change a single decision isn't caution. You’re just carrying that weight for no reason and no return. If this genuinely concerns you, don’t worry about the perfect hedge. Make sure your own household doesn't carry the same fragility the government's balance sheet does: real reserves, sane debt, income that doesn't depend on one source. That's boring advice. It's also the only part of this whole conversation you can control.
Joshua Staph, CIMA®
Founder, Verak Private Wealth · joshua@verakprivatewealth.com
· verakprivatewealth.com
The views expressed are those of the author and are for informational and educational purposes only. Not investment, tax, or legal advice. Tax treatment depends on your individual circumstances and may change under future legislation; consult a qualified tax advisor before acting. Any figures are hypothetical and not a projection or guarantee of future results.
Securities offered through Cambridge Investment Research, Inc., Member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Verak Private Wealth LLC and Cambridge are not affiliated.