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America\u2019s debt problem isn\u2019t an immediate crisis, but it could become one if nothing changes. That\u2019s the takeaway from Federal Reserve Chair Jerome Powell delivered in a recent discussion with Harvard economics students (1).<\/p>\n
\u201cThe level of the debt is not unsustainable,\u201d Powell said, \u201cbut the path is not sustainable. It will not end well if we don\u2019t do something fairly soon.\u201d<\/p>\n
With the war in Iran ongoing and gas prices hovering near $4 per gallon, the broader economic backdrop is already uncertain.<\/p>\n
So what does this actually mean for Americans?<\/p>\n
Importantly, Powell did not call for paying down the debt outright. Instead, he pointed to a more realistic goal.<\/p>\n
\u201cWe don\u2019t have to pay the debt down,\u201d he said. \u201cWe just need to have primary balance and begin to have the economy actually growing more quickly than the debt.\u201d<\/p>\n
The U.S. still benefits from structural advantages that make its debt more manageable than that of other countries, including its status as the world\u2019s reserve currency and its deep, liquid capital markets (2). These factors allow it to carry higher levels of debt without triggering an immediate crisis.<\/p>\n
However, the trajectory is where the risk lies.<\/p>\n
Federal debt is growing faster than the economy, pushing the debt-to-GDP ratio higher. Meanwhile, interest payments are surging. It\u2019s projected to exceed $1 trillion in 2026, up from $345 billion just a few years ago.<\/p>\n
According to Powell, the gap between how fast debt grows and how fast the economy expands is what makes the situation \u201cunsustainable.\u201d<\/p>\n
Read More: I\u2019m almost 50 years old and don\u2019t have retirement savings. Is it too late?<\/a><\/p>\n The U.S. national debt, now sitting around $39 trillion, can ripple through the economy by pushing interest rates higher, fueling inflation and eroding purchasing power (3).<\/p>\n As borrowing costs rise, everything from mortgages to credit cards becomes more expensive. Businesses face higher financing costs, which can weigh on hiring and investment. And in the stock market, higher rates tend to put pressure on valuations, particularly for growth-oriented companies.<\/p>\n There\u2019s also the risk of what some investors call the Crowding Out Effect (4). This is the economic theory that government spending increases lead to reduced private-sector investment because of rising interest rates and taxes.<\/p>\n Bridgewater founder Ray Dalio has spoken on this in the past (5). At one point, he even called it a \u201cbond market heart attack.\u201d<\/p>\n \u201cThe big cycle is when debt and debt service rise relative to incomes, which reaches a point \u2014 an inflection point \u2014 that that can’t continue,\u201d Dalio explained to Marketplace in 2025. \u201cWhen you’re in a position where the debt accumulates relative to the income, then debt service payments squeeze out spending.\u201d<\/p>\n The result isn\u2019t a sudden crash. It\u2019s the slowing of returns, constricting financial conditions and a more volatile investing environment.<\/p>\n Admittedly, warnings about U.S. debt aren\u2019t new. The alarm has been sounding for decades, and yet the system has continued to function, grow and recover through multiple fiscal crises (6).<\/p>\n Fixing the problem won\u2019t be simple. Plus, Powell argues it\u2019s in the hands of Congress to solve.<\/p>\n It would likely require some combination of higher taxes, reduced spending or faster economic growth \u2014 all of which come with political and economic tradeoffs (7). This is what some would term a wicked problem, or an issue made up of complex, contradictory parts. Push one lever and another one gives.<\/p>\n For investors, that means avoiding extremes.<\/p>\n Ignoring the issue entirely could leave you exposed to long-term risks. But reacting emotionally to headlines can be just as costly.<\/p>\n Before you go chasing returns in uncertain markets, it\u2019s critical to build a base you can rely on during downturns, whether that\u2019s a job loss, unexpected expense or market correction.<\/p>\n A high-yield account like a Wealthfront Cash Account<\/a> can be a great place to grow your uninvested cash, offering both competitive interest rates and easy access to your money when you need it.<\/p>\n The Wealthfront Cash Account currently offers a base APY of 3.30% through program banks, and new clients can get an extra 0.75% boost during their first three months on up to $150,000 for a total variable APY of 4.05%<\/a>.<\/p>\n That\u2019s ten times the national deposit savings rate, according to the FDIC\u2019s March report.<\/p>\n Additionally, Wealthfront is offering new clients who enable direct deposit ($1,000\/mo minimum) to their Cash Account and open and fund a new investment account an additional 0.25% APY increase with no expiration date or balance limit, meaning your APY could be as high as 4.30%<\/a>.<\/p>\n With no minimum balances or account fees, as well as 24\/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, you get access to up to $8M FDIC Insurance eligibility through program banks<\/a>.<\/p>\n Once you\u2019ve got a solid base to work with, then you can start taking advantage of opportunities in the market.<\/p>\n If rising debt eventually contributes to inflation or currency depreciation, some investors look for assets designed to hold value over time.<\/p>\n One way to invest in gold that can also provide significant tax advantages is to open a gold IRA with the help of Priority Gold<\/a>.<\/p>\n Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, which combines the tax advantages of an IRA with the protective benefits of investing in gold<\/a>, making it an attractive option for those looking to hedge their retirement funds against economic uncertainty.<\/p>\n To learn more, you can get a free information guide that includes details on how to get up to $10,000 in free silver<\/a> on qualifying purchases.<\/p>\n Unlike gold, which primarily preserves value, real estate can generate income and benefit from rising prices over time.<\/p>\n Rental income can increase alongside inflation, providing a built-in hedge while also producing cash flow.<\/p>\n You can tap into this market by investing in shares of vacation homes or rental properties through Arrived<\/a>.<\/p>\n Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties<\/a>, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.<\/p>\n To get started, simply browse through their selection of vetted properties<\/a>, each picked for their potential appreciation and income generation. Once you choose a property, you can start investing with as little as $100<\/a>, potentially earning monthly dividends.<\/p>\n Once you\u2019re an investor with Arrived, you\u2019ll gain access to their newly launched quarterly secondary market, where investors can buy and sell shares of individual rental and vacation rental properties directly on the platform.<\/p>\n This allows you to buy into properties you may have missed at the initial offering or sell shares before a property reaches the end of its hold period.<\/p>\n With access to more than 400 properties in 60 cities<\/a>, this new way to trade real estate offers flexibility and opportunities to gain access to more properties each quarter.<\/p>\n Even with diversification, navigating uncertain markets isn\u2019t easy, especially if you\u2019re trying to pick individual stocks in a more volatile environment.<\/p>\n That\u2019s where data-driven investing tools can help reduce some of the guesswork.<\/p>\n Moby<\/a> offers expert research and recommendations to help you identify strong, long-term investments backed by advice from former hedge fund analysts.<\/p>\n In four years, and across almost 400 stock picks, their recommendations have beaten the S&P 500 by almost 12% on average. They also offer a 30-day money-back guarantee.<\/p>\n Moby\u2019s team spends hundreds of hours sifting through financial news and data to provide you with stock and crypto reports delivered straight to you<\/a>. Their research keeps you up-to-the-minute on market shifts and can help you reduce the guesswork behind choosing stocks and ETFs.<\/p>\n Plus, their reports are easy to understand for beginners, so that you can become a smarter investor in just five minutes<\/a>.<\/p>\n Ultimately, Powell isn\u2019t predicting an immediate crisis. He\u2019s warning about direction.<\/p>\n His message is that while the current level of debt is manageable, the long-term trajectory could create real economic constraints if left unchecked.<\/p>\n For investors, that doesn\u2019t call for panic. It calls for discipline.<\/p>\n It might be best to avoid trying to time the market based on headlines or policy fears. Instead, it could pay to focus on building a resilient financial foundation, diversifying across asset types and staying consistent with long-term investing strategies.<\/p>\n The U.S. debt may not \u201cend well\u201d eventually, but your portfolio doesn\u2019t have to follow the same path.<\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n Fortune (1<\/a>); Capital Group (2<\/a>); FiscalData (3<\/a>); Investopedia (4<\/a>); Marketplace (5<\/a>); Brookings (6<\/a>); Congressional Budget Office (7<\/a>)<\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below. 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