STEWARDSHIP 48 DECEMBER 2025 www.goodnewsfl.org Good News • South Florida Edition “…the borrower is slave to the lender,” so it says in Proverbs. Paul Tudor Jones calls the paradox of U.S. debt and today’s mostly calm bond market an economic “kayfabe;” a pro-wrestling term. Those who know that the numbers aren’t sustainable conveniently suspend disbelief while the show continues. Ray Dalio gives America about three years to avert an economic heart attack. Jones and Dalio are amongst the best-known and successful investors in the world. Our nation’s debt has reached an astonishing level of $38 trillion ($350,000 per taxpayer), with last year’s interest payments totaling $1.124 trillion. With fiscal deficits as far as the eye can see, those interest payments aren’t declining. Last year, the U.S. economy had GDP of $26.9 trillion, putting debt-to-GDP at 1.4 times. Historically, a deeply troubling calculation that often signals a societal downward trend. U.S. credit card debt has reached an astonishing level of $1.3 trillion, along with historic delinquencies. The average American owes $20,000, at an average interest rate of 24.2 percent. One-third of Americans have less than $500 on hand for emergencies, while one-quarter have zero. The top 10 percent of income earners account for half of all consumer spending, while the top 50 percent of all taxpayers pay 97.7 percent of all federal income taxes. One-half of Americans have no retirement savings. Debt service vs. defense The further we look back and learn from the past, the better we will be able to prepare for and understand the future. And history tells us that any superpower that spends more on debt service than on its defense seriously risks ceasing to be a global power. That insight originates more than 250 years ago with a Scottish political theorist, whose Essay on the History of Civil Society identified the perils of excessive debt. The author’s seemingly prophetic conclusion: “An expense, whether sustained at home or abroad, whether a waste of the present, or an anticipation of future, revenue, if it brings no proper return, is to be reckoned among the causes of national ruin.” Noticeably, America attained the shackling distinction of expending more on interest than on defense in 2024. Interest expense was the earlier mentioned $1.124 trillion, while our defense spending was $1.107 trillion. Moreover, there is little possibility that defense spending will increase dramatically, and debt service will fall. Because defense spending is discretionary, it has to be appropriated by Congress every year, unlike spending on mandatory entitlement programs and interest payments. If anything, budgetary constraints, with the rapid rise of debt, are likely to put downward pressure on defense spending in the years and decades ahead. Additionally, history suggests that in any sustained period when a superpower spends more on interest payments than on military capabilities, it is likely to see rivals challenge its position. The tension between defense and debt service undermines domestic stability, as governments try, but fail, to meet the competing demands of generals, bondholders, taxpayers and welfare recipients. In the absence of meaningful reform of America’s entitlement programs, the only plausible way that the U.S. can come back to a more proper balance on defense spending relative to debt service is through a miracle of productivity. Many point to Artificial Intelligence (“AI”) as the path to such a productivity revolution. We surely hope so. But we don’t think it’s likely a straight line there, and a wise and deliberate investor doesn’t simply invest in hope. And when an inevitable recession arrives, along with the inherent loss of jobs and wage gains, that level of credit card debt will certainly weigh heavy on those carrying it. Favor a debt-light approach Companies, governments, people, even churches and para-church ministries should favor a debt-light approach in their undertakings. Being diligent and prudent, with minimal indebtedness, placing trust in the One who provides, each can be liberated to navigate their financial path in freedom. Therefore, when researching investments, we should always favor well-capitalized (debt-light) companies. We consider this is another core investment principle, since these companies are well suited to navigate storms of all varieties and sustain business adaptability over the long-term. Great investors know their investments well, and do not undertake one unless they can calculate a high potential for profit. Moreover, they ignore those who know their investment’s less than they do and are prone to act upon their sound and experienced judgment no matter what’s happening around them. Most importantly, they avoid any investment where there is little to gain and much to lose. Being debt-light is a cornerstone consideration to any investment’s outcome over time. As investors, we always make time our friend. Debt debilitates, while making companies, Americans, and others toil for their lenders. Proverbs speak truth and we are always wise to adhere to it. Patrick J. Kelly has spent more than four decades at the most senior levels in the financial services industry. He has held executive leadership positions in banking and securities firms, served numerous profit and nonprofit boards, possesses advanced education in economics, accounting and finance, and has been a featured guest in numerous financial media forums. At present, he endeavors to impart his experience and knowledge to younger generations whenever possible while also offering consultation on securities and banking industry practices for litigation-related expert witness testimony. - Patrick J. Kelly - President, Kelly Advisory Group Debilitating Debt
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