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(Kitco News) - With the U.S. national debt surging above $34 trillion, many prominent investors and financial leaders are raising alarm over a looming crisis. Even Federal Reserve Chair Jerome Powell has weighed in expressing concern that U.S. debt is unsustainable. However, the U.S. central bank is a major part of the problem, according to Charles Payne, Host of Making Money on FOX Business Network and the author of ‘Unbreakable Investor.’
Powell issued his own candid warning on U.S. debt during CBS’s ’60 Minutes,’ criticizing lawmakers for effectively borrowing from future generations with their unsustainable fiscal policies and stating that it was time for “an adult conversation.”
“In the long run, the U.S. is on an unsustainable fiscal path,” Powell said on Sunday. “And that just means that the debt is growing faster than the economy … We're effectively borrowing from future generations … It’s time for us to get back to putting a priority on fiscal sustainability. And sooner's better than later.”
While weighing in on the U.S. fiscal policy might be controversial for Powell, the Fed is a big part of the problem when it comes to debt, Payne told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News.
“It's a nice sound bite,” Payne said. “But the function of the federal reserve itself belies what he was saying. They've always been the biggest buyers of U.S. Treasuries, which facilitate this crazy nonstop spending on both sides of the political aisle. That's why he had free reign to speak about it. It wasn't like he was pointing fingers at anyone in particular.”
The important thing to understand is how the Fed plays a central role in all this, Payne added. “We're here at the precipice of this situation where [Powell] rightfully acknowledges that there's a problem, but to be quite frank, I don't see the Federal Reserve doing anything about it,” he said. “They play a role in all of this. They're not backing away from this role.”
On top of that, the Fed receives more power and responsibility almost every year. “I think the Federal Reserve is already far too powerful an entity, not truly responsible to anyone, not truly answering to anyone. It's part of the problem. He's pointed out a major problem. Unfortunately, he didn't underscore his part of the problem,” Payne explained.
Payne highlighted that the Fed has become the most powerful entity in the world in its ability to move domestic and even global economies. For more on Payne's insights on the Fed's role outlined in his latest book 'Unbreakable Investor,' watch the video above for details.
"The Federal Reserve is responsible for far too much. And who do they answer to? Realistically, who gets to fire Jerome Powell tomorrow? No one. I'm concerned that we've created this all-powerful entity, almost like Dr. Frankenstein's monster, and within that entity, people would be shocked to learn how left-leaning it is right now,” Payne said.
An organization that is supposed to be nonpartisan has become very political, and there are serious consequences that could come from that. “Overwhelmingly, they’re very liberal, left-leaningDemocrats. These are the folks that will take control of the most powerful entity out there," Payne said. “And I do believe it will be more politicized."
Payne also weighed in on whether he foresees a scenario with no U.S. central bank or one with diminished powers. For insights, watch the video above.
The U.S. ‘fumbled’ its reserve currency status: Accelerating de-dollarization and unsustainable debt levels
Quickly rising U.S. debt levels are becoming one of the top concerns among individuals like JPMorgan Chase CEO Jamie Dimon, who says the U.S. economy is heading toward a financial crisis due to escalating national debt.
Speaking at the Bipartisan Policy Center, Dimon cautioned of a looming "hockey stick" surge in debt, adding that if U.S. lawmakers don’t alter the current path of spending, there could be “rebellion” among foreign owners of U.S. government bonds. "It is a cliff, we see the cliff. It's about ten years out, we're going 60 miles an hour [toward it],” Dimon said.
Also, Tudor Investment founder Paul Tudor Jones warned that even though it may look like the U.S. economy is firing on all cylinders, there is a “debt bomb” under the surface. “We’ve got a 6% to 7% budget deficit. We’re fast-pouring consumption like crazy,” Jones told CNBC. “The only question is … when does that manifest itself in markets? It could be this year, it could be next year. Productivity may mask, and it might be three or four years from now. But clearly, we’re on an unsustainable path.”
This concern around debt could have serious consequences when it comes to the dollar as the global reserve currency, according to Payne. "There's no doubt that the dollarization trend is picking up. We have fumbled this gift, this responsibility of being the world's reserve currency. The only problem is there's no one else out there to take advantage of it right now, but that's not always going to be the case," he said.
Payne added that it was important to pay attention to big oil-producing countries, like Saudi Arabia, accepting payments for oil in currencies other than the U.S. dollar.
To get Payne’s timeline for when the U.S. dollar could permanently lose its reserve currency status and what can replace it, watch the video above.
What does it all mean for the stock market in 2024?
Payne also outlined what this macro environment means for the U.S. stock market this year.
For Payne’s precise stock picks and investment insights, watch the video above.
Kitco Media
Anna Golubova
