‘Concerning’: Hedge fund manager Bill Ackman reacts to historian’s warning about the brewing US debt crisis — 2 ways to help prep your portfolio

According to projections from the Congressional Budget Office, the U.S. government is on track to spend $892 billion in interest payments to manage its immense $28 trillion debt burden. That’s higher than the $822 billion defense budget for the fiscal year.

Interest rates have risen in recent years which has made this payment bigger. Meanwhile, increasing the national debt is one of the few bipartisan trends in America. Both Donald Trump and Joe Biden have added around $7 trillion each to the total debt burden during their terms.

Based on Ferguson’s Law, the American economy is in a precarious position. Investors seeking to protect themselves could turn to assets that have performed well during economic turmoil.

Gold

Gold has a relatively good track record of retaining its value during turmoil and economic crises, according to analysis by Sprott Asset Management. Bars of the precious metal have appreciated by double digits during the Global Financial Crisis in 2007-09, the pandemic panic of 2019-2020 and the Russia/Ukraine war of 2022-24. Sprott’s analysis shows the metal has delivered a 13.98% average return during crises while the S&P 500 dropped on average 9.61% during these periods.

Many central banks across the world hold a portion of their assets in gold bullion as a safety net, which makes it a great potential hedge for regular investors too.

Foreign diversification

Some countries have displayed better financial discipline than the United States. The United Arab Emirates has a debt-to-GDP ratio of just 29.96%, according to the International Monetary Fund. Switzerland’s debt-to-GDP was 17.8% at the end of 2023, according to the Swiss Federal Department of Finance.