Does It Matter Who’s Holding the Bomb When It Explodes?

Maybe it’s Stockholm Syndrome.

I don’t know. But I really tried to come at this with an open mind.

“This” is a recent story from a Forbes senior contributor. I won’t name him—no purpose in that. But I will share the headline:

Strange Debt: How I Learned To Stop Worrying And Love The Debt Bomb

Like I said, maybe it’s Stockholm Syndrome in which the abused begins to develop feelings, maybe even comes to see the world from their abuser’s point of view.

I’ll save you the time I wasted in reading this Forbian claptrap.

Two key points the senior contributor makes:

1. 70% of the debt is owed to the American people.

2. The share of the national debt owned by foreign governments is falling (the contributor—laughably—implies that this is somehow a good thing. We shall return to laugh at this in a moment…)

Let’s start with Point 1.

If I owe $1 million to the neighbors on my street instead of to Bank of America, does that matter?

Of course not!

I still owe $1 million. Who I owe it to is just a function of who gets screwed when I ultimately welch on my debt.

Legitimately, who cares if Uncle Sam owes money to Americans or Martians?

He. Owes. Money!

To whom is irrelevant.

Debt still must be paid off. Debt-servicing payments must still be made—doesn’t matter if those payments go to Granny Smythäple in Paducah or to some rando government that owns US Treasury debt.

The senior contributor contends that owing money to US citizens is good because the interest payments return to the economy and that some part of it returns to the government in the form of tax payments.

True… but again, So what?

America’s debt is growing exceedingly fast, and debt payments will consume a projected 15% of Uncle Sam’s 2025 budget. And that is assuredly under-guessing at what will really happen. Better to think debt-servicing will cost America about 17% to 20% of its budget next year.

But frankly, that’s not really the point.

The point is that the size of America’s debt is exploding, and depending upon the impacts of Trump’s agenda—tax cuts, deportation, tariffs—debt could surge even faster than expected because of the likelihood the Federal Reserve raises rates to counter Trump-flation that will emerge.

Higher interest rates would directly flow through to the rates the US has to pay on the debt it continually must sell to keep the joint running.

Again, who owns that debt, and who collects the interest payments is largely a shoulder shrug.

Debt is debt.

Debt payments are debt payments.

And debt is agnostic about nationality.

He who holds the debt, regardless of passport, is the one who’s hurt when the debt payments stop and the value of the debt owned plunges.

I don’t make the rules…

And now for our laugh: The share of the national debt owned by foreign governments is falling.

As a senior contributor for Forbes writing about Treasury matters, one should reflexively understand that Treasury matters necessarily impact dollar matters, and one must then ask, “What does it mean to the dollar if fewer national governments own America’s debt?”

And what it means is nothing good.

As I noted several paragraphs back, Uncle Sam’s minions and muppets must sell a dirty-word-ton of debt every year to fund the vast and growing debts and deficits America continually racks up every year.

Americans and American financial institutions cannot absorb all that paper. It’s one of the reasons the economy grows slower than it otherwise would—productive capital is pulled from the productive economy to fund US debt, which doesn’t fund the productive economy but rather an inefficient government. It’s an economic concept known as “crowding out.”

As such, the US desperately needs foreign buyers to gobble up huge sums of US debt.

If they don’t, then it falls to others to step into the void—namely US institutions—and buy as much as possible. But to entice them into buying more and more debt requires, at some point, higher interest rates… which then means the US is having to pay even larger interest costs… which then requires Treasury to sell even more debt to cover the higher interest payments.

No doubt, you see the circular destruction that ensues.

And that then rips through the dollar.

There’s already growing concern that the dollar is a troubled currency because of those extreme debt costs. That—that!—is a primary reason countries are increasingly backing away from the greenback.

Moreover, if countries aren’t buying US debt, they have less need to trade their local lucre for the dollars necessary to, well, buy US debt. That reduces demand for the dollar. And in the simple world of supply/demand economics, falling demand leads to falling prices… meaning the value of the dollar slides lower globally… which hits all those Americans to whom Uncle Sam owes debt payments.

Senior contributors to Forbes can spin it however they want so that they can stop worrying and learn to love the debt bomb.

But the reality doesn’t change: America’s debt is a bomb. And regardless of who’s holding it, that bomb will detonate at some point and those who hold the debt will be smithereens.

This is why I own no US debt. The stable-value component of my nest egg is in Swiss francs. Because when the American debt bomb goes boom!, the franc is going to be one of the best fallout shelters.