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I WONDER WHEN THEY WILL GET IT.

Part of the affliction of bond investors is that we start with the negative. In fact, we often wallow in the negative! For people who know me, I am actually quite an optimist. I try to find the good in people and in situations. I am a huge fan of this country watching what my immigrant family has been able to achieve.

Every morning, I start my day at the office going through a pile of reading starting with the Wall Street Journal, working through several articles on my Bloomberg terminal, and the piles of research we get from a variety of research houses. While I am concerned about the second attempt on former President Trump’s life and the dangerous environment that is being created with all of the political rhetoric, the “it” I want to discuss this morning has little to do with the current election. The “it” is the insane level of debt that this country continues to pile up and the distinct lack of political will that no one seems to want to bring to the party. Former President Trump has said if he is reelected, he will extend the tax cuts that were enacted during his administration. Vice President Harris has stated that if taxes go up, they will only be on the “really” rich people.

Several years ago, I read an article that was focused on the rapid growth of entitlement spending and the concern that it would overtake the federal budget and harm the long-term health of the economy. The columnist had a pithy ending and stated if the U.S. did not quell the rapid growth of the entitlement package, that the U.S. would end up essentially being an insurance company with an army. Bill Crerend was the founder of Evaluation Associates, my former firm, and he was a fabulous mentor and partner. He had a knack for cutting through nonsense. I remember we were discussing the British empire, and he was musing that the U.S. would one day end up very much like Great Britain: important, but no longer the dominant world power.  

I will leave social scientists the job of envisioning a world with a severely weakened U.S. I do not fear the U.S. stumbling because of another military power. I am concerned that the U.S. will no longer be able to be the U.S. because of the weight of debt and interest payments. Remember, when a borrower is deemed risky, the market extracts more interest which makes it more expensive for them to finance their debt and this becomes a vicious cycle that can end in collapse.

I am not forecasting the default and collapse of the U.S. I am saying that I am growing overly concerned as we near the line of $1 trillion in annual interest payments for the first time, and the strain this will place on our economy. This is the “existential threat” that Washington really needs to start thinking about.

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

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