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Mark Spitznagel, co-founder and CIO of the private hedge fund Universa Investments, is known for making juicy returns for wealthy investors with his patented tail-risk hedging strategy<\/a>, a form of market \u201cinsurance\u201d that pays handsomely during times of economic and market turmoil<\/a>. But when it comes to his generation\u2019s debt obsession, Spitznagel sounds more like a social activist than a hard-nosed money manager.<\/p>\n For years, the 53-year-old has warned that the national debt<\/a>\u2014which recently surged over $34.5 trillion<\/a>\u2014is unsustainable. He argues that, when that rising debt combines with decades of loose monetary policy that lifted asset prices ever higher, growing piles of consumer debt, and businesses\u2019 penchant for leaning on credit during times of stress, it creates a \u201ctinderbox economy<\/a>\u201d that could go up in flames in a moment\u2019s notice. It\u2019s the \u201cgreatest credit bubble<\/a> in human history,\u201d Spitznagel told Fortune<\/em> last year, warning that \u201cit will have its consequences.\u201d<\/p>\n With this in mind, we decided to ask Spitznagel, who has two teenagers of his own, what this credit bubble will mean for future generations, and how he feels about his cohort\u2019s debt-laden legacy. As usual, he didn\u2019t pull any punches.<\/p>\n \u201cWe have been just incredibly irresponsible to future generations. They played no part in this, and yet they will bear the burden for this,\u201d the hedge funder told Fortune<\/em>. \u201cWe should all feel really, really bad about it\u2014like really bad about it. It\u2019s gonna hurt people that aren\u2019t even alive today. How is that right?\u201d<\/p>\n For Spitznagel, the U.S.\u2019 unsustainable federal debt is outright unethical. He argues it\u2019s merely a way to kick the can down the road to the next generation whenever problems emerge, particularly problems that could hurt investors\u2019 market returns. From spending billions<\/a> to save \u201ctoo big to fail\u201d banks during the Great Recession of 2008 to pumping trillions into the economy to prevent a terrible recession during the COVID era, the federal government has for decades now managed to prevent large swaths of America from experiencing economic pain during trying times. These spending policies, which have typically come in tandem with near-zero interest rates from the Federal Reserve, have helped juice markets and enable incredible post-recession recoveries in the 21st century. That\u2019s a good thing in the short term, but avoiding worst-case scenarios via hefty deficit spending comes at a cost for future generations, in Spitznagel\u2019s view.<\/p>\n It\u2019s essentially a \u201cmassive, massive transfer of wealth brought forward from the future,\u201d he argued. \u201cThere\u2019s something immoral, just very simply, about public debt\u2014that individuals can take on debt for their own benefit to be paid for by people who had no say in that debt.\u201d<\/p>\n Spitznagel\u2019s concerns about the U.S.\u2019 mounting debts aren\u2019t without merit. A mix of costly spending bills, COVID-era rescue packages, and weak tax revenues<\/a> have helped push the U.S. national debt 28% higher since 2020 alone, from $26.9 trillion to over $34.5 trillion. That left the U.S.\u2019s debt-to-GDP ratio, which serves as an indicator of a country\u2019s ability to repay its debts, at a record 123% in January, according to the International Monetary Fund<\/a>.\u00a0<\/p>\n Even worse, the University of Pennsylvania\u2019s Wharton School economists found in a 2023 study<\/a> that the U.S. has about 20 years left for \u201ccorrective action\u201d to fix the national debt before it hits 200% of GDP. After that, \u201cno amount of future tax increases or spending cuts could avoid the government defaulting on its debt,\u201d they warned.<\/p>\n While the U.S. defaulting on its debts is a very unlikely scenario, and something that couldn\u2019t happen for decades, the impact of the rising national debt is already being felt to some degree. The U.S. federal government is projected to spend $870 billion, or 3.1% of GDP, on interest payments for its debt this year, according to the Congressional Budget Office<\/a> \u2014 more than the entire Department of Defense budget. For the last two decades, the U.S. has spent an average of just 1.6% on servicing its debt, about half of this year\u2019s projections. And the CBO is forecasting the government\u2019s interest expenses to rise to 3.9% of GDP over the next 10 years. To illustrate just how extreme the interest payments are, it should be noted that U.S. federal, state, and local governments combined spent a total of just $810 billion on education in 2023.<\/p>\n In total, net interest payments on the federal debt will be around $12.4 trillion over the next decade, according to the Peter G. Peterson Foundation<\/a>, a conservative think tank. That\u2019s money that could be spent on a number of far more useful things.<\/p>\n For Spitznagel, this expensive reality means politicians need to take action immediately to get the U.S.\u2019 national debt back on a sustainable path. But unfortunately, he predicts, it might already be too late to do so painlessly.<\/p>\n The hedge funder argued that after decades of loose monetary policy and soaring debts, it may be impossible for the next generation to end the cycle of indebtedness without incurring serious consequences in the form of an epic recession. That means when today\u2019s youth comes of age and a crisis hits, they will likely \u201chave to do more of the same,\u201d racking up debt to avoid worst-case scenarios.<\/p>\n But you can\u2019t keep borrowing forever, Spitznagel says\u2014and he\u2019s afraid we\u2019re well past the point of needing to cut back. \u201cOne can make the case that at some point it stops working,\u201d he said.<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n