As of 2025, the U.S. national debt reached 124% of the country's GDP, equivalent to ~$30 trillion, surpassing levels from World War II.
Lacy Hunt, Executive Vice President and Chief Economist of Hoisington Investment Management, shared a troubling picture of the future of the U.S. economy. In an interview with WorthNet, the former employee of the Federal Reserve harshly criticized the central bank and pointed out serious distortions in unemployment data. The expert warned against investing in government bonds, calling for an urgent review of fiscal and monetary policy.
Questionable statistics and errors of the Fed
At the beginning of the year, Lacy Hunt noted the problem of global dollar liquidity. According to him, for a long time the indicator grew at a stable rate of about 10% per annum, but under current conditions, it is reducing by the same share.
One of Hunt's main complaints in the July interview is the distortion of employment data and the destructive policy of the Fed. According to him, the official reports on which key indicators are built greatly overestimate the real state of affairs.
They only survey 360,000 large companies and extrapolate data to 12 million businesses. At the same time, they do not account for the errors of small firms. In the III–IV quarter, the error reached up to 5–6 sigmas — this is a statistical catastrophe,” he notes.
Hunt wonders why the Bureau of Labor Statistics (BLS), having census and employment data for five months, cannot automatically load them into the current calculation model:
Both statistics are collected by the same agency — BLS. Why their databases do not synchronize in the digital age — I do not understand.
Distortions in the complex chain of statistical data directly affect the Fed's policy and the transparency of the economy.
The expert harshly criticized the methods of the Federal Reserve in recent years, especially regarding its tacit consent to fiscal expansion. According to him, the central bank made a number of strategic mistakes, including the abolition of the reserve requirement — a mechanism that for many years limited excessive liquidity buildup in the banking system.
The Fed has, in essence, coordinated actions with fiscal authorities. This is one of the factors that distort the functioning of the money market and weaken the role of the central bank as an independent arbiter,” Hunt states.
In his opinion, the organization is not just slow to respond to the impending deflation, but acts based on outdated scenarios:
The Fed is like a driver looking in the rearview mirror, rather than forward.
Despite the decrease in interest rates, borrowing remains expensive; it costs businesses 8%, and credit card users over 20%. The contraction of the money supply combined with tight monetary policy is suffocating small businesses and consumers. As a result, the likelihood of a deep and prolonged recession increases.
Hunt agrees with the fact of declining inflation, but emphasizes that this is not the merit of a finely tuned government mechanism. Classically, such a decline should be accompanied by a fall in GDP, but this has not happened. In this correlation, the economist noted the blame of distorted BLS statistics.
Displacement of the 'invisible hand of the market' and the rapid growth of public debt
According to the specialist, the tariff policy of U.S. President Donald Trump, especially regarding China, did not lead to the strengthening of American industry but had the opposite effect. The chain of mutual tariffs reduces global trade, lowers corporate revenues, and weakens demand for labor, capital, and natural resources.
The paradox is that the initial surge in inflation from rising prices is quickly offset by declining demand, followed by deflationary pressure.
The model of the Chinese economy — rigidly centralized, with a high level of state participation — undermines the foundations of the free market, as described by Adam Smith and David Ricardo, believes Hunt. China imposes its rules of the game on the rest of the world, and the USA is losing industrial independence, which is strategically important in the face of macroeconomic and epidemiological challenges.
According to the expert, in 1970 the share of government in the economy was 25% of GDP. Now it is 35%.
This is a gradual displacement of the 'invisible hand' of the market. We are not China or Europe, but we are moving in that direction.
The government is increasingly allocating resources directly, funding this with debt, which further undermines productivity and investment.
The situation is aggravated by demographics: in China, Europe, and even in the USA, population aging is observed. This usually leads to a decline in consumption, innovative activity, and economic growth.
One of the most alarming signals pointed out by Hunt is the rapid growth of public debt. Today it stands at 124% of GDP, exceeding levels from the World War II period. Meanwhile, $12 trillion is currently in the hands of foreign investors: $7.5 trillion in government bonds, $4.5 trillion in corporate bonds, and about $2 trillion in mortgage securities.
In 10 years, it will be 135% — and this is already based on the official CBO forecasts. This is a historically dangerous trajectory, comparable to what happened with Rome, Britain, and France before systemic collapse,” warns the economist.
Hunt reinforced his statements with research by Kenneth Rogoff and Carmen Reinhart, according to which a sustainable level of debt above 90% of GDP reduces potential growth by a third.
In the case of the USA, this is only 1.2% of real per capita growth over the last 20 years, instead of the historical 2.3%, leading to the accumulation of hidden economic damage.
If the country had maintained its previous production rates, the average income per person would be $85,000 today instead of $62,500. A loss of $12,000 per person is a direct consequence of fiscal policy,” summarized the scholar.
Lacy Hunt projected a slow but systemic shift of the American economy towards stagnation. High debt, distorted statistics, weak central bank response, degrading demographics, and the growth of the public sector are not separate problems but an interconnected mechanism leading to a loss of economic dynamism.
Investors are advised by the specialist to be cautious: while markets are overvalued, bond yields are attractive, but recession risks are real.
While the Fed acts like 'generals preparing for the last war,' the main threat, according to the expert, is the 'unwillingness of systemic players to recognize that old methods no longer work.'