The math of national insolvency is no longer theoretical
Ray Dalio calls it a heart attack. He is being generous. On December 5, 2025, the U.S. national debt sits at a staggering 38.2 trillion dollars. This is not a static figure or a political talking point. It is a systemic failure of the American balance sheet. The debt has grown by nearly 4 trillion dollars in the last eighteen months alone. While generic news outlets focus on the total amount, they miss the actual killer. The interest expense is the real poison. For the first time in modern history, interest payments on federal debt are projected to exceed the entire annual defense budget. We are no longer borrowing to build infrastructure or fund innovation. We are borrowing just to keep the lights on and pay back the interest on previous loans.
The interest rate trap is closing fast
The Federal Reserve finds itself in a corner. If they cut rates to ease the government’s interest burden, they risk reigniting the sticky inflation that plagued 2024. If they keep rates high, the cost to service the 38 trillion dollar pile becomes unsustainable. Per recent data from Bloomberg, the yield on the 10-year Treasury has remained stubbornly high as global investors demand a larger risk premium for holding American debt. This is the heart attack Dalio refers to. It is the moment when the world realizes the lender is no longer solvent without the printing press.
Visualizing the fiscal death spiral
To understand the gravity of the situation, we must look at how much of our tax revenue is being cannibalized by interest payments. The following chart illustrates the rapid ascent of net interest outlays as a percentage of total federal revenue from 2021 through the end of 2025.
The hidden mechanics of the debt cycle
The government is currently trapped in a cycle of short term refinancing. According to the latest figures from Yahoo Finance, a massive portion of the national debt is set to mature in the next twelve months. This means the Treasury must issue new debt at current high interest rates to pay off old debt that was issued when rates were near zero. This is the definition of a debt trap. There is no productivity gain here. There is only the frantic shuffling of papers to avoid a technical default. Retail investors often ignore this because it feels distant, but the impact on the dollar’s purchasing power is immediate and violent.
Comparing the cost of government
When we break down where the money actually goes, the picture becomes even grimmer. The following table compares major federal outlays for the fiscal year ending in 2025. It reveals that interest payments are no longer a minor line item; they are a dominant force in the budget.
| Spending Category | 2025 Estimated Outlay (Billions) | % of Total Budget |
|---|---|---|
| Social Security | $1,450 | 21% |
| Net Interest on Debt | $1,120 | 16.5% |
| National Defense | $895 | 13% |
| Medicare | $860 | 12.5% |
| Transportation & Infrastructure | $140 | 2% |
The endgame for the global reserve currency
Dalio suggests that we are in the late stages of a long term debt cycle. Historically, this ends in one of three ways. First, a default, which is unthinkable for the U.S. military. Second, massive tax hikes that stifle growth. Third, the monetization of debt. We are currently choosing the third path. By printing money to pay the debt, the government effectively taxes every person who holds dollars through inflation. This is why hard assets and gold have reached record highs in late 2025. The market is sniffing out the devaluation before the politicians admit it.
Preparation is not optional
Investors cannot rely on the traditional 60/40 portfolio in this environment. When the sovereign issuer of the world’s reserve currency is facing a fiscal heart attack, the old rules of diversification are dead. We are seeing a flight to quality that bypasses the bond market entirely. The risk is not just that the debt exists. The risk is that the mechanism for paying it back has been permanently broken by the sheer scale of the interest obligations.
The next critical date to watch is March 15, 2026. This is when the current debt ceiling suspension expires and the Treasury will be forced to employ extraordinary measures again. Watch the 10-year Treasury yield closely as we approach that date. If it crosses the 5.5% threshold, the interest payments will consume nearly 30% of all federal tax revenue by the end of that year.
