Wharton Professor Sees $34T Debt Sparking Meltdown

The exploding $34 trillion U.S. national debt under President Joe Biden is dangerously hurdling the world toward a meltdown that will hurt the next president in 2025, a Wharton professor warned Sunday.

“If they come up with plans for large tax cuts or another big fiscal stimulus, the markets could rebel, interest rates could just spike right there, and we would have a crisis in 2025,” Wharton Business School finance professor Joao Gomes said, told Fortune. “It could very well happen. I’m very confident by the end of the decade one way or another, we will be there.

“Toward the latter part of the decade we will have to deal with this,” he continued. “It could derail the next administration, frankly.”

Among the fiscal warnings is mortgage rates spiraling up to 7% “or higher” if it is ignored by Washington, Gomes added.

Gomes is not alone, though, according to the report:

• JPMorgan Chase CEO Jamie Dimon has warned of a “rebellion” in the market amid exploded debt.
• Bank of America CEO Brian Moynihan lamented there is talk “admiring” the debt bubble instead of addressing it.
• Black Swan author Nassim Taleb warned of an economic “death spiral.”
• President Joe Biden’s Fed Chairman Jerome Powell said it is past the time to have an “adult conversation” on debt.

“I probably worry about the U.S. debt more than most of my professional colleagues,” according to Gomes. “But in this election year I believe voters should ask much tougher questions of politicians that don’t take this threat seriously.”

The presidential election needs to be on this issue more than it has been, he said.

“I wish it was a big issue, but I’m not sure it’s in the interest of either party to make it a big issue,” Gomes told Fortune. “As we discuss promises about: ‘What we’re going to do with tax and programs’ it’s going to be important to put it in the context of: ‘Can we afford that?’

“It’s a really obvious moment in history for us to say: ‘OK, what are our choices, what can we feasibly do, who has the better plan?’ I suspect neither party is interested in that and it might all be pushed under the rug.”

Ultimately, Americans are going to pay the price.

“The most important thing about debt for people to keep in mind is you need somebody to buy it,” Gomes told Fortune. “We used to be able to count on China, Japanese investors, the Fed to. All those players are slowly going away and are actually now selling.

“If at some moment these folks that have so far been happy to buy government debt from major economies decide, ‘You know what, I’m not too sure if this is a good investment anymore. I’m going to ask for a higher interest rate to be persuaded to hold this,’ then we could have a real accident on our hands.”