We recently discussed the unsustainable debt our nation faces. Government debt has nearly doubled since 2018, topping $36 trillion.Old guard politicos spent trillions, leaving future generations to foot the bill. For decades, irresponsible politicians borrowed and spent, kicking the can down the road. Soon interest expense will eat up the entire federal budget.Like it or not, a major reset is coming. It makes little difference who won the election, the incoming administration must fix the sins of the past caused by the entire political class.Government debt is a paper promise backed “by the full faith and credit of former politicians!” That does not create confidence….Who holds this debt?Wolf Street runs the numbers:

“The US national debt keeps ballooning at an amazing rate and has now reached $36.16 trillion.”

He estimates:

“US Government entities: $7.16 trillion. This …. consists of Treasury securities held by various federal civilian and military pension funds, the Social Security Trust Fund the Disability Insurance Trust Fund, the Medicare Trust Funds, and other funds.

US State and local governments, including in their pension funds: About $1.8 trillion

US Private Pension funds: $1.1 trillion

US Insurance companies: $0.63 trillion

US mutual funds About $5.0 trillion

US Individuals: About $3.1 trillion

Nonmarketable Securities Held by the Public: $0.59 trillion

‘Other’: $0.4 trillion”

Government “Trust Fund” is an oxymoron. They took our “premiums,” spent the money, slipping paper IOUs in the drawer. It’s a politician with his fingers crossed behind his back saying “trust me.” Scary, isn’t it?Around $19.78 trillion in US government political promises is held in government and private pension funds. Much of the $5.0 trillion in mutual funds also likely is held in self-directed IRAs, 401k’s, etc.While Americans thought they were saving for retirement, the government was spending the money. When the government “guarantees” a pension fund, they just add some more paper IOUs. Any default or dollar devaluation will devastate retirees.On to the banking system.“Federal Reserve: $4.36 trillion (Fed is owned by “member banks”)US Commercial Banks: $1.73 trillion”Since 2008, the Fed kept rates artificially low. Bank profits soared and the wealth gap of the top 1% grew by around 12%, from approximately $15 trillion to over $44 trillion. The rich get richer….Much of that wealth is held in the investment arm of “Too Big To Fail” banks. The top ten banks control over 50% of total banking assets. Congress historically protects the wealthy and the expense of “the people.”With “too big to fail” banks, taxpayers will likely be on the hook (as always) should any default take place.Continuing on:“Foreign holders: $8.67 trillion”Who Gets Screwed?The political class should have no problem screwing our foreign creditors, with little regard to the consequences – regardless of how severe. I wouldn’t discount WWIII….Americans hold, directly or indirectly, approximately 72% of our government debt and will bear the brunt of any currency devaluation or default. We’ll all get screwed to some degree, but will we see a recession or a Great Depression unlike no other?I wrote the DOGE leaders, offering ideas to minimize the pain for the public. Everyone should be pulling for them to succeed.What can we do to minimize our pain?Many individuals, drowning in debt, have been able to right the ship without declaring bankruptcy. The premise is simple; spend less than you earn, stop borrowing and reduce your debt load. Individuals do that all the time, why not a government?Cut all unnecessary spending. Determine needs versus wants. Do without until you right the ship.Increase your income. Get a better job, work two jobs, whatever it takes.Behavior must change. Use the savings to pay down debt, not buy new stuff. Over time paying off debt will require a smaller portion of your income. It can be done, takes a long time, and requires discipline.Governments can do the same thing. “Anonymous politicians” confided to me that raising taxes and paying off debt doesn’t get you reelected. Spending money, rewarding your constituents and donors gets the job done.Reducing government debt requires adult behavior and commitment; an unnatural act for politicians. Some may be committed, while their political opposition screams. Getting elected is more important than doing what is right. Congressional term limits anyone????Argentina president Javier Milei is currently taking a chainsaw to a bloated government. His massive spending cuts are bringing inflation down. It can be done.With discipline, debt service will become a smaller portion of income, freeing up funds for other things – while avoiding increasing the debt load.Government debt compared to gross domestic product illustrates the point: During the Reagan years, the ratio was around 30%. Since the 2008 bank bailouts, debt to GDP more than doubled, topping 120%. Our government’s spending addiction must stop.While DOGE may save billions in waste, fraud and abuses of taxpayer dollars – just like the private sector, cost cuts alone are unlikely to bring prosperity. Their efforts will go for naught unless the debt-to-GDP ratio starts coming down significantly.Individuals can go back to work, get another job, invest better, or simply work longer before retiring. While choices may be tough, do the best you can.How can government increase income?There are two ways.First, and very unpopular, raise tax rates and tax more stuff. Government tax receipts almost tripled since 2008. Unfortunately, government spending increased even more. Gutless politicians, unwilling to raise taxes to cover their outrageous spending, resorted to historic borrowing, putting us further in the hole, leaving the next generation to pay for their sins. And pay they will….Increasing tax rates won’t get the job done, and could hasten throwing the country into a depression.The second option is to promote policies that raise government tax revenue without raising tax rates. Theoretically, you can grow your way out of a recession. Trump is trumpeting (pun intended) tax cuts to spur the economy. His political opponents scream, “You have no proof that has ever worked.” They are correct.They fail to mention why. No matter how much the government takes in, politicos are hell-bent on spending trillions more. There is no proof because Congress can’t control their spending addiction.I’d prefer to just make the last tax cuts permanent; avoiding the largest tax increase in history and seeing if DOGE can get spending under control.Reducing the need for foreign energy and increasing our exports will help the economy grow; the government will benefit from additional taxes.I’ve written about tariff threats bringing about better trade deals.Fair trade deals and lowering energy prices should help slow inflation, bring prices down, spur the economy and generate additional tax revenue; however, there is a lag factor and the results may not show up for a few years.What must be avoided is an all-out trade war. If that happens the depression will make the last one look tame, the entire world will suffer and we could end up with a major war.Trying to thread the needle…The cause of our mess is easily understood. Cheap money caused excessive borrowing and government spending. Lenders, flush with cash, made billions lending to anyone with a pulse. Inflation arrived and the Fed tries to slow it down by raising rates. Of course, loan defaults will normally rise.During The Great Depression, failing banks clamped down on lending. If too much capital is taken out of the system too quickly, solid companies and individuals cannot borrow, consumer demand goes down and the depression’s spiral continues. Creditworthy businesses and individuals must have access to capital for the economy to flourish.Government, business and citizens must go back to living within their means.What can we do as individuals?During the last Great Depression, we were primarily an agricultural society, much of the population could live off the land. Not so today, and the impact of the reset will affect everyone.I feel it’s still possible the government, by working together, can thread the needle, get all the bad debt out of the system, and the recession will be short. While people screamed about Paul Volcker, he was swift, decisive and in a few short years, things were turned around.Individuals must get out of debt – live below your means and get your house in order.Government will tell us all is under control – just like they did in 2008, and things changed overnight. Do your homework and don’t be fooled!Investors should expect a major market correction, more than just a dip; that’s just how things work. Great, well-run companies’ stock prices will decline with the market. Diversify, keep your stop losses up to date and, as always, own gold and other inflation-protection assets.Beware of funds; particularly REITS heavily invested in commercial real estate and those with high yields holding lower-grade debt. As defaults continue, investors will continue unloading bond funds, creating a downward spiral. Fund managers may be forced to sell good assets at discounted prices to cover redemptions. Are current yields enough to cover the potential for a catastrophic drop in price? Proceed with caution.Understanding what’s going on and investing ahead of the crowd will fare much better. Whether it is a recession or depression, this too shall pass. Investing wisely and thinking clearly will help avoid many of the major potholes lying ahead.
 On The Lighter Side…I’m not enjoying the theatrics surrounding congressional hearings of Trump’s cabinet nominees. Decided to move the “quote of the week” forward today.Founding Father, John Adams warned:“There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution.”Career politicos, no matter how asinine the issue, feel they must carry on like fools and oppose anything the other party stands for. They don’t care when the media goes back in the archives showing these same hysterical clowns taking the exact opposite side of the argument earlier in their career. Lying and hypocrisy are just considered politics….Big Pharma, banks, the military-industrial complex and others flood Congress with millions, incentivizing Congress to put their needs and profits ahead of what is right for the country. Politicos of all flavors, screaming like idiots, pretend to care while looking after their donors, selling their votes to the highest bidder. Who really looks after us, the individual citizen? Do any of them have a conscience?Our founding fathers envisioned citizen legislators, sacrificing personally, leaving their families for months on end to “temporarily” serve their country. It was a true sacrifice.These fossil (I’m in my 80’s; it takes one to know one!) career politicians on both sides of the aisle are pathetic. When they retire, they’re hailed as “public servants.” What a bunch of crap; they fade into the sunset with hundreds of millions of dollars.These hearings have further convinced me that until we institute congressional term limits, DOGE or any other congressional reform movements may be temporary at best…. The system must be changed.Sorry about that, I’ll get off my soapbox, needed to get that off my chest.A positive note…. I came back to AZ with January’s calendar filled up with routine and follow-up doctor visits. All are going very well – doing great – no change since last year – see you in 2026! In the last two weeks five doctors have given me the green light; keep on keeping on. I’ll take it!
 And Finally…Lifelong friend Tom G. shares some humor that is sadly true:

I’ve selected another John Adams quote for my favorite:

Until next time…More By This Author:Will The Tariff Sheriff Be Able To Revive The Economy? What Should We Expect? What Should We Do?Like Sands Through The Hourglass, So Are The Days Of Our Lies….