The U.S. is heading towards a financial crisis, and the process is happening at a slow pace, cautioned David Kelly, the chief global strategist at J.P. Morgan Asset Management.

Debt Could Rise Faster Amid Economic Strains

Kelly highlighted the U.S. government’s long-term financial obligations as a major concern. He pointed out that despite geopolitical tensions, trade wars, and the government shutdown, the primary issue is how the government will manage its debts.

He acknowledged that investors are already aware of the debt trajectory but emphasized that the issue will develop gradually over time. “…while we are going broke, we are going broke slowly,” said Kelly.

He also cautioned that debt could rise more quickly than expected, particularly if a recession occurs or if there is significant new spending on domestic or international priorities.

As per their assumptions, the debt-to-GDP ratio would rise from 99.9% on Sept. 30 to 102.2% of GDP 12 months later.

Politics Could Worsen Debt, Hit Dollar

He also warned that political decisions could accelerate the decline of federal finances, potentially driving up long-term interest rates and weakening the dollar.

“There is a danger that political choices lead to a faster deterioration in the federal finances,” wrote Kelly.

As per Kelly, the U.S. government can still issue 30-year debt at a yield of only 4.6%, suggesting there is still capacity for additional borrowing. He also urged investors to consider diversifying their portfolios with alternative assets and international equities amid current allocations and valuations.

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US Spending Outpaces Revenue

In another warning, Dalio described the national debt situation as being at a critical juncture, stating that the nation was now spending 40% more than it was taking in.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.