Are We in the Late Stage of the Big Debt Cycle? What the Fed and Leading Economists Are Actually Saying

 I'm David Bellairian, founder and CEO of Glencore Associates. I allocate capital for a living, and lately the question I get most from other operators and investors isn't about any single stock. It's about the debt. Is the United States actually approaching a crisis, or is this the same recurring panic that's been wrong for fifteen years running? I went back through what the Fed itself is saying, what the government's own watchdog projects, what Ray Dalio's debt-cycle research shows, and what the leading skeptic on the other side argues. Here's what I found.

The numbers as of 2026

Total federal debt has climbed past $38 trillion. Debt held by the public, the portion that matters most for interest costs, sits above $31 trillion. The Government Accountability Office, Congress's own fiscal watchdog, projects annual deficits averaging over $2 trillion every year through 2036, with publicly held debt reaching roughly 123 percent of GDP by then. Net interest on the debt already exceeds what the federal government spends on national defense, and the Congressional Budget Office expects gross interest payments to eat up nearly 4 percent of GDP by 2028.

The 10-year Treasury yield, the number that effectively sets the government's borrowing cost, has climbed from around 1.75 percent in 2021 to above 5 percent in 2026. The Penn Wharton Budget Model estimates the outer limit of what the US can sustain before markets stop lending at any workable rate is roughly 210 percent of debt to GDP, with a meaningful chance of reaching that ceiling within the next 14 to 20 years under current trends.

What the Fed itself is saying

Fed Chair Jerome Powell has been unusually direct about this. In remarks earlier this year, he said the current path, spending well beyond what the country takes in, is not sustainable, and that it will not end well if Washington doesn't act fairly soon. He was careful to separate two ideas: the debt level itself isn't the immediate problem, the trajectory is. Powell's actual concern is that economic growth needs to keep pace with spending, and right now it isn't.

That's a notably calmer framing than the doomsday headlines. The Fed isn't forecasting an imminent default. It's flagging a structural direction that needs to change before it becomes one.

Ray Dalio's Big Debt Cycle

Ray Dalio, founder of Bridgewater Associates, has spent decades studying how debt cycles play out across history, and he built a framework around it in his book How Countries Go Broke. His model is simple to state and harder to escape: credit expansion works when it finances activity that generates enough income to repay principal and interest. Debt becomes dangerous once borrowing outpaces the ability to service it, because at that point debt payments start crowding out everything else a government needs to spend on.

Dalio's current read is blunt. He estimates the US federal government will spend roughly $7 trillion in fiscal 2026 against $5 to $5.6 trillion in revenue, a gap he considers nearly double what's sustainable. He's called the country on the brink and has warned of what he terms an economic heart attack within roughly three years absent a real fix, one that he says needs to bring the deficit down to around 3 percent of GDP through some mix of spending cuts, higher revenue, and lower interest rates. He's flagged the stretch between the 2026 midterms and the 2028 presidential race as a particularly dangerous window, since the political incentives during that period tend to run opposite to the fiscal discipline he thinks is required.

The case against panic

Not every serious economist agrees, and the disagreement is worth taking seriously rather than waving away. Nobel laureate Paul Krugman has argued repeatedly that a debt spiral requires the interest rate on government debt to run meaningfully above economic growth, and by his read that isn't currently the case. He points out that debt crises are historically rare, that the US retains structural advantages other countries in past crises didn't have, including the dollar's reserve status and the world's deepest bond market, and that warnings of an imminent crisis have been wrong for roughly fifteen years running. His conclusion isn't that the debt doesn't matter. It's that the specific mechanics of a Greek-style collapse aren't present in the US right now, and that treating every rise in yields as proof of an imminent crisis has a poor track record.

Where that leaves someone managing capital

I don't think the honest answer is a clean yes or no. Powell, Dalio, and Krugman aren't actually disagreeing about the facts, the debt is large, deficits are wide, and interest costs are rising fast. They disagree about timing and mechanism: whether the specific conditions for a genuine funding crisis, a sustained break in demand for Treasury debt, are close or still a decade-plus away. Nobody serious is calling for panic. Several serious people are calling for a plan, and admitting Washington doesn't currently have one that adds up.

What I watch personally isn't a single number. It's whether the 10-year yield holds a sustained move meaningfully above 5.5 percent, which several stress scenarios flag as the level where refinancing risk starts to compound. Until then, I treat this the way I treat most macro risk in the portfolio at Glencore Associates: not as a reason to make one big directional bet, but as one more argument for holding assets that don't all depend on the same outcome.

I write more on investing and company building at davidbellairian.substack.com and davidbellairian.com. I'm the founder and CEO of Glencore Associates, a Los Angeles private investment and asset management firm, and the founder of AIDiscover, an AI-powered marketing and brand discovery agency.

This is my own analysis of publicly reported research and commentary, not investment advice.