$1.8 trillion deficit revealed during ‘pointless and wasteful government shutdown,’ budget watchdog says

The Committee for a Responsible Federal Budget (CRFB) sharply criticized the $1.8 trillion federal deficit for FY2025 and the $37.8 trillion national debt, deeming them unsustainable and urging immediate fiscal reforms. CRFB advocates for extending spending caps, implementing a "Super PAYGO" rule, and establishing a fiscal commission to reduce deficits to 3% of GDP, highlighting the impending insolvency of Medicare and Social Security within seven years. Echoing these concerns, hedge fund billionaire Ray Dalio warns against debt-fueled prosperity and advises investors to allocate 15% of their portfolios to gold, linking its record highs to rising global debt and a shifting monetary order.

Analysis

The Committee for a Responsible Federal Budget (CRFB) sharply criticized the projected $1.8 trillion federal deficit for fiscal year 2025 and the nation's $37.8 trillion debt, labeling the situation "pointless and wasteful." CRFB President Maya MacGuineas highlighted the U.S. is on track to borrow nearly $2 trillion annually for the next decade, with national debt nearing the entire U.S. economy's size, signaling an unsustainable fiscal trajectory. CBO projections further forecast public debt reaching 118% by 2035, alongside rising net interest payments.

To address this, CRFB proposes extending discretionary spending caps, implementing a "Super PAYGO" rule for fiscal responsibility, and establishing a fiscal commission to reduce deficits to 3% of GDP. A critical concern is the impending insolvency of Medicare and Social Security trust funds within approximately seven years without reform, highlighting significant long-term fiscal challenges exacerbated by political gridlock.

Hedge fund billionaire Ray Dalio reinforces these concerns, warning that debt-fueled prosperity is temporary and expressing skepticism about growing out of the $37 trillion debt. Dalio points to gold's record highs in 2025 as reflecting rising global debt and a "change in the monetary order," with central banks increasing reserves, suggesting a shift away from traditional debt assets and fiat currencies.

Key Decisions for Investors

• Investors should assess their portfolio's exposure to U.S. sovereign debt risk given the projected $1.8 trillion deficit and $37.8 trillion national debt, considering the long-term implications of rising interest payments and entitlement insolvencies.
• Evaluate the strategic allocation of commodities, particularly gold (e.g., via GLD, AAAU), as a potential hedge against increasing global debt levels and a shifting monetary order, echoing Ray Dalio's recommendation for a 15% portfolio allocation.
• Monitor legislative developments regarding fiscal policy, including potential spending caps, "Super PAYGO" rules, and bipartisan efforts to address Medicare and Social Security solvency, as political gridlock poses a significant risk to fiscal stability.