'Mind-blowing' US debt binge amid high interest rates is threatening financial stability, Larry McDonald says

• The US government has spent some $28 trillion since 2020, causing its debt to surge to a record of almost $33 trillion.
• The spending binge has created a "mind-blowing hole" in the nation's public finances, according to Larry McDonald.
• Earlier this year, experts like Ray Dalio and Nouriel Roubini have also warned of the risk of a debt crisis in the US.

US government debt almost doubled in the past decade to a record level of almost $33 trillion, or 122% of the nation's GDP.

And that's got experts concerned.

Fiscal spending has skyrocketed since the pandemic and shows little sign of slowing — and this has created a "mind-blowing hole" in the nation's finances, according to markets guru Larry McDonald. In a blog post on Wednesday, the author and former strategist cited data from the Kobeissi Letter to illustrate his worries.

Federal spending during the 2020-2023 period has amounted to a staggering $28 trillion, he pointed out in an X post on the same day.

"There is a price to pay...It's NOT free," he added.

McDonald isn't the only commentator who has voiced worry about America's ballooning debt burden in recent months. Billionaire investor Ray Dalio warned in June that the US is at the start of a "classic late, big cycle debt crisis" characterized by the nation facing a shortage of buyers for its bills and bonds. Veteran economist Nouriel Roubini also has expressed similar concerns.

Fitch Ratings downgraded the US's long-term credit rating earlier this month, citing a "steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters."

Worries about the strain on public finances is also rising as sharply higher interest rates lead to a jump in the cost of federal borrowings. The market rate on 10-year Treasury bonds has surged to about 4.25% from as low as 0.32% in early 2020 — that's a 13-fold increase in a little over three years — as the Federal Reserve jacked up interest rates to combat inflation.

McDonald, founder of the Bear Traps Report, also discussed potential ways to reduce debt — including austerity, drastic currency reform, and through inflation.

"Another way to improve debt to GDP ratios is through hidden debt reduction i.e. inflation. It is an old truism that inflation is a tax, and that raising taxes outright is considered an unpalatable risk politically," he wrote in the blog. "Financial repression means to keep the return to savers below the inflation rate. This is what the US and the UK did after WWII."

"The US government's financial repression is a back door way of lowering government debt thereby improving the debt-to-GDP ratio to a sustainable level," he wrote. "Politicians are loath to outright raise taxes on the middle class, so they tax everybody via inflation."