America is ‘going broke slowly’ says JPMorgan, as national debt balloons and tariff revenue looks shaky

JPMorgan's David Kelly warns that the U.S. is "going broke slowly," with national debt exceeding $37.8 trillion and a 99.9% debt-to-GDP ratio projected to rise further due to persistent budget deficits. While near-term optimism exists from tariff revenues and slight deficit reduction forecasts, Kelly cautions these are fragile and could quickly worsen with political choices or an economic slowdown. He advises investors to diversify portfolios with alternative assets and international stocks to mitigate risks from potential higher long-term interest rates and a weaker dollar should the fiscal situation deteriorate rapidly.

Analysis

JPMorgan's David Kelly highlights the escalating U.S. national debt, currently exceeding $37.8 trillion with over $1.2 trillion in annual interest payments. The debt-to-GDP ratio stands at 99.9% and is projected to rise, reaching 102.2% within 12 months from September 2025, even under moderate 4.5% nominal GDP growth if deficits exceed 4.5%. This trajectory indicates a "going broke slowly" scenario, acknowledged by global bond markets yet not causing immediate panic.

While some near-term optimism exists due to $31 billion in August tariff revenues and CBO forecasts of a slight deficit reduction to 6% of GDP for FY2025, Kelly cautions against complacency. These estimates are fragile, relying on no recession and no major new spending, and the 6.7% of GDP deficit estimate is likely a "low-ball." Furthermore, the sustainability of tariff revenues is questionable, with potential Supreme Court challenges risking substantial refunds and requiring new policy.

The primary risk lies in political choices or an economic slowdown accelerating the fiscal deterioration, potentially leading to a rapid increase in long-term interest rates and a weaker U.S. dollar. This shift from a "slow" to a "fast" fiscal crisis would significantly impact asset valuations and investor returns. The overall sentiment surrounding this outlook is strongly negative, reflecting significant market impact concerns.

Key Decisions for Investors

• Investors should strategically diversify portfolios away from an over-reliance on U.S. assets, considering allocations to alternative assets and international equities to mitigate sovereign debt risks.
• Closely monitor key fiscal indicators such as the debt-to-GDP ratio, budget deficit trends, and long-term interest rate movements for signs of accelerated deterioration.
• Prepare for potential market volatility and currency depreciation if political choices or economic slowdowns trigger a faster-than-expected fiscal crisis, impacting U.S. asset valuations.