Billionaire Jeffrey Gundlach says the United States is approaching a historical trigger point that has marked the decline of past empires.
In a new DoubleLine Capital video update, the billionaire investor points to what is known as “Ferguson’s law,” a principle dating back to the 18th century.
“And he came up with the idea that any great power that spends more on debt service than on defense risks ceasing to be a great power. So there’s this trigger point when you’re spending more on interest expense than you are on defense.”
He cites the Spanish Empire as an example of how rising debt service can spiral.
“One was the Spanish empire in the 1500s, who had a crazy thing. They had 50% of revenue going to interest expense. And unbelievably, over 20 years, it went to 87% of revenue going to interest rate expense. Obviously, the empire collapsed under that because they didn’t have any money for their military anymore…
Whenever you have that much debt and that much interest expense, unfortunately, it invites a lot of corruption, as we’ve seen all over the United States in more glaring, literally obvious terms in the past year or two.”
Turning to the present, he says the US is now allocating roughly one-fifth of revenue to interest payments.
“Well, the US now is at 20% of revenue, a little higher than that, but it rounds down to 20% of revenue going to interest expense. So our revenue is $5.4 trillion. Our budget is about $7.3 trillion. So if there’s that big deficit in there of $1.9 trillion, that’s going to keep being ladled on. And the interest expense is already $1.2 trillion.”
Data from the Federal Reserve shows that the US is now paying a record $1.227 trillion to service the interest on its ballooning national debt. Meanwhile, the Peter G. Peterson Foundation finds that US defense spending amounts to $916 billion.
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