As of 2025, US public debt amounted to 124% of the country’s GDP, roughly $30trn, surpassing the level seen during the second world war.
Lacy Hunt, executive vice‑president and chief economist at Hoisington Investment Management, outlined a troubling outlook for the US economy. In an interview with WorthNet the former Federal Reserve official delivered a withering critique of the central bank and pointed to serious distortions in unemployment data. He warns against investing in government bonds, urging an urgent rethink of fiscal and monetary policy.
Dubious statistics and the Fed’s missteps
Earlier this year Hunt noted a problem with global dollar liquidity. For a long time the gauge grew at a steady pace—about 10% a year—but under current conditions it is shrinking by a similar share.
One of Hunt’s main complaints in the July interview is distorted employment data and the Fed’s ruinous policy. He says the official reports on which key indicators are built greatly overstate reality.
“They survey only 360,000 large companies and extrapolate the data to 12m businesses. They do not account for small-firm errors. In Q3–Q4 the error was up to 5–6 sigma—this is a statistical catastrophe,” he notes.
Hunt wonders why the Bureau of Labor Statistics (BLS), with five months of census and employment data in hand, cannot automatically feed them into the current calculation model:
“Both sets of statistics are collected by the same agency—the BLS. Why their databases are not synchronised in the digital age—I do not understand.”
Distortions in the complex chain of statistical data directly influence Fed policy and the economy’s transparency.
He also lambasted the Fed’s methods in recent years, especially its tacit acquiescence to fiscal expansion. In his telling, the central bank made strategic errors, including eliminating reserve requirements—a mechanism that for years restrained excessive liquidity growth in the banking system.
“The Fed, in effect, coordinated its actions with the fiscal authorities. This is one of the factors that distort the functioning of the money market and weaken the role of the central bank as an independent arbiter,” Hunt says.
In his view, the institution is not merely late to the looming deflation; it is acting from outdated playbooks:
“The Fed is like a driver looking in the rear‑view mirror rather than ahead.”
Despite a lower policy rate, credit remains costly—about 8% for businesses and above 20% for credit‑card users. The contraction of the money supply, together with tight monetary policy, is choking small firms and consumers. The likelihood of a deep, prolonged recession is rising.
Hunt agrees that inflation has fallen, but stresses that this is not the achievement of a finely tuned government mechanism. Classically such a decline should be accompanied by a fall in GDP, yet it did not occur. He pins the broken correlation on skewed BLS statistics.
The crowding‑out of the “invisible hand” and a rapid rise in public debt
According to him, President Donald Trump’s tariff policy, especially toward China, did not strengthen American industry; it produced the opposite effect. A chain of retaliatory duties shrinks world trade, lowers corporate income and weakens demand for labour, capital and natural resources:
“The paradox is that the initial surge in inflation from higher prices is quickly offset by declining demand, and then deflationary pressure arrives.”
China’s economic model—tightly centralised, with a high share of state involvement—undermines the foundations of the free market described by Adam Smith and David Ricardo, Hunt argues. China imposes its rules on the rest of the world, and the United States is losing industrial independence, which is strategically vital amid macroeconomic and epidemiological challenges.
In 1970 the state’s share of the economy was 25% of GDP. Today it is 35%:
“This is the gradual displacement of the ‘invisible hand’ of the market. We are not China or Europe, but we are moving in that direction.”
The state is allocating resources directly ever more often, financing it with debt, which further undermines productivity and investment.
Demography worsens matters: in China, Europe and even the United States the population is ageing. Typically that leads to weaker consumption, less innovation and slower economic growth.
One of the most worrying signals Hunt highlights is the rapid rise in public debt. Today it stands at 124% of GDP, exceeding the level of the second world war. Some $12trn is now in the hands of foreign investors: $7.5trn in government bonds, $4.5trn in corporate ones and about $2trn in mortgage securities.
“In ten years it will be 135%—and that is already in the official forecasts of the CBO. This is a historically dangerous trajectory, comparable to what happened to Rome, Britain and France before systemic collapse,” the economist warns.
Hunt buttressed his arguments with research by Kenneth Rogoff and Carmen Reinhart, which finds that a sustained debt level above 90% of GDP cuts potential growth by a third.
For the United States that has meant just 1.2% real per‑capita growth over the past 20 years, instead of the historical 2.3%, leading to an accumulation of hidden economic damage.
“If the country had preserved its previous pace of output, average income per person would be $85,000 today instead of $62,500. A loss of $12,000 per person is a direct consequence of fiscal policy,” the scholar concluded.
Hunt projects a slow but systemic shift of America’s economy toward stagnation. High debt, distorted statistics, a weak central‑bank response, deteriorating demographics and an expanding state sector are not separate problems but an interlocking mechanism that saps dynamism.
He advises investors to be cautious: while markets are overvalued and bond yields alluring, the risks of recession are real.
So long as the Fed acts like “generals preparing for the previous war”, the greatest threat, in his view, is “the reluctance of system players to admit that the old methods no longer work”.
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