America Is Going Broke Slowly: J.P. Morgan’s David Kelly Warns Debt Spiral Could Snap Without Warning – Financial Freedom Countdown

J.P. Morgan Asset Management’s chief global strategist, David Kelly, issued a stark reminder this week: America isn’t going broke overnight; but it is going broke.

In his latest episode of Notes on the Week Ahead, titled “Going Broke Slowly: The Investment Implications of Still-Rising Federal Debt,” Kelly argues that investors and policymakers have grown numb to an unsustainable fiscal path.

With U.S. national debt now exceeding $37.8 trillion and annual interest payments topping $1.2 trillion, he warns the government’s borrowing habit could become catastrophic faster than most expect.

Deficits That “Only Look Better” on Paper

The Congressional Budget Office (CBO) estimated a 2025 federal deficit of $1.8 trillion, or 6% of GDP; a figure Kelly says looks deceptively stable. Without one-time adjustments, such as accounting maneuvers tied to federal student loan programs, the true deficit would have surpassed $2 trillion.

And next year may be worse. Rising net interest costs, slower growth, and generous tax cuts mean deficits could swell again to 6.7% of GDP or higher. “It’s worth pausing here to consider this number,” Kelly said. “At 99.9% of GDP, any deficit north of 4.5% ensures the debt-to-GDP ratio keeps rising.”

A Fiscal Cliff Hidden in Plain Sight

Even under moderate growth and steady inflation, Kelly projects the debt-to-GDP ratio will exceed 102% by late 2026. But the real danger, he warns, lies in complacency.

A Supreme Court ruling against Trump’s emergency tariffs could erase a key source of federal revenue and even force costly refunds. Meanwhile, political pressure ahead of the midterms could push Congress to issue new “stimulus-style” payments to sustain consumer demand—further inflating the deficit.

“Because of all of this, a deficit equal to 6.7% of GDP should probably be regarded as a low-ball estimate of this year’s red ink,” Kelly cautioned.

When ‘Going Broke Slowly’ Turns Fast

Global bond markets, for now, remain calm. The U.S. can still borrow for 30 years at around 4.6% interest, suggesting investors believe Washington can keep kicking the can down the road. But that stability may not last forever.

Kelly warns that political choices—a prolonged trade war, new tax cuts, or populist spending—could suddenly flip the narrative, sending rates and the dollar lower in a “faster deterioration” scenario. “The risk that we move from going broke slowly to going broke quickly adds an important reason to diversify now,” he said.

Trump’s DOGE and the $3.4 Trillion Question

In a political twist, President Trump’s proposed Department of Government Efficiency (DOGE); an initiative once backed by Elon Musk, was meant to trim $2 trillion from the federal budget.

Instead, the administration’s One Big Beautiful Bill Act is projected by the CBO to add $3.4 trillion over the next decade.

The White House insists tariff revenues will offset that increase, but even the Committee for a Responsible Federal Budget has questioned those assumptions, estimating that the deficit path will remain stubbornly high through the 2030s.

Investor Takeaway: Diversify Before the Storm

Kelly’s message isn’t one of panic; but of prudence. With valuations for U.S. stocks near dot-com-era extremes and fiscal pressures mounting, he advises investors to look abroad and into alternative assets.

“Global markets are fully aware of America’s fiscal trajectory,” Kelly concluded. “But investors shouldn’t mistake calm for safety. We’re going broke slowly—and that gives you time to prepare, not permission to ignore it.”

“Global bond markets are very well aware of the trajectory of U.S. debt. The fact that even today, the U.S. government can borrow money for 30 years at a yield of just 4.6% speaks to a conviction that there remains room for the government to borrow more.

That being said, there is a danger that political choices lead to a faster deterioration in the federal finances, leading to a backup in long-term interest rates and a lower dollar. Based on current allocations and valuations alone, many investors should likely consider diversifying their portfolios by adding alternative assets and international stocks. The risk that we move from going broke slowly to going broke quickly adds an important reason to make this move today.”

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