“People hate to think about bad things happening, so they always underestimate their likelihood.”
–The Big Short
May 20, 2025 — In the year 1980, a young computer science grad student from the University of Washington named Burrell “Bud” Tribble accepted a job at a hot tech startup you might have heard of: it’s called Apple.
Tribble went to work directly for Steve Jobs on Apple’s most ambitious project at the time– the Macintosh. And he quickly learned, along with the rest of the Macintosh team, that Jobs’ management style was relentless, maniacal, and irrational… bordering on insane.
Steve Jobs famously dismissed his engineers’ doubts about whether they’d even be able to design such an audacious product. And he certainly didn’t care about minor inconveniences like the laws of physics or what was technologically achievable at the time. To Jobs, nothing was impossible. Full stop.
Tribble later enshrined this attitude as the “Steve Jobs Reality Distortion Field,” where a sort of techno-evangelism and intellectual swagger combined with unbridled optimism to bend the truth to whatever Jobs wanted to believe… or what he wanted everyone else to believe.
And most people were captivated by it; in fact, it was this Reality Distortion Field that transformed Apple’s customers into almost cult-like followers who camp out for days in advance of a new product launch.
It also had its drawbacks; in fact, the same Reality Distortion Field caused Jobs to almost bankrupt his company NeXT simply so that its desktop computer would be a perfect cube.
I thought about this recently because the Reality Distortion Field it’s the most appropriate way to characterize America’s fiscal condition.
The US national debt is now $36.2 trillion– a number which will skyrocket in a few months after Congress increases the debt ceiling. If you count “off-balance sheet” debts, which include unfunded amounts owed to future Social Security and Medicare recipients, total liabilities are around $100 trillion.
And these are numbers grow worse at an alarming rate.
Federal spending has already reached a point where ALL government tax revenue is spent just on mandatory entitlements plus interest on the debt.
In other words, 100% of discretionary spending, which includes the military, national parks, and homeland security, must be financed with more debt.
Interest on that national debt is now more than military spending; and the annual interest bill is also growing very rapidly– it will exceed $1 trillion this year, more than 20% of tax revenue.
If that weren’t bad enough, Social Security’s primary trust fund is set to run out of money in 7-8 years, resulting in an immediate cut to benefits on the order of about 20% to 25%. Bailing out the program will require trillions of dollars just as a down payment.
Yet just like Jobs routinely dismissed the extreme challenges of his projects, many of the major players in global finance dismiss the US government’s horrific fiscal condition.
They look at the gruesome, unholy numbers and conclude, “Everything’s going to be fine, there’s no problem here.” It’s reality distortion at its finest.
The media. Big Wall Street banks. Politicians. Seemingly everyone has a vested interest in rejecting any concern over the US government finances.
Ratings agencies have also been under the spell of America’s Reality Distortion Field; these are the guys who are tasked with providing an honest assessment of a government’s creditworthiness. Yet for decades they insisted that America should still have the highest, pristine, AAA rating.
S&P was the first to break the spell more than 10 years ago, followed by Fitch. This past Friday, the last of the ‘Big 3 agencies’, Moody’s, broke the spell and exited the Reality Distortion Field.
All three have now downgraded America’s sovereign credit rating.
Do these agencies really matter, and have their downgrades really changed anything?
Not really. In theory, a lower rating means that the US government should have to pay a higher interest rate when it borrows money from the bond market. But sovereign ratings are pretty meaningless for wealthy countries.
Japan has a lower credit rating than the US, yet it still enjoys near-zero interest rates. Australia has a higher rating, yet the bond market demands much higher interest rates on Australian government bonds.
So ultimately, the Moody’s downgrade is really just a symbol of more and more major financial players escaping the Reality Distortion Field.
Another big group that’s starting to break the spell is foreign governments and central banks, who, for decades, have entrusted trillions of dollars of their savings to the belief of America’s endless power.
Yet from Joe Biden shaking hands with thin air to Liberation Day chaos to naval fighter jets falling into the ocean, the past few years have proven to them that America is no longer the trusted and reliable partner it once was.
This is why foreign governments and central banks started to diversify rather aggressively away from the US dollar beginning in 2023-2024. And this is a really big deal considering that foreign institutions own about HALF of all US marketable, fixed rate government debt.
Losing foreign demand for US dollars and US government bonds would require the Fed to print trillions of dollars make up the difference… which would almost certainly result in substantial inflation in the US.
And that leads me to the most important story from last week; it wasn’t Moody’s downgrade, which was simply stating the obvious. It was the President’s trip to the Middle East.
Donald Trump is very much like Steve Jobs in his reality distortion; he seems to be ignoring the obvious, looming debt crisis based on a belief that America will always be OK.
Frankly, this approach is dangerous, because it encourages complacency, inaction, and inertia in Congress… hence the House’s push for a “Big Beautiful” bill which carries a $2 trillion annual budget deficit.
I would be much better for the country if the President were preaching fiscal responsibility and pushing Congress to cut spending. This isn’t happening.
Yet on the bright side, POTUS did manage to secure a substantial commitment from Qatar, Saudi Arabia, and the UAE.
I’m not talking about the reported trillions of dollars of investment, but rather the fact that relationships with those oil-producing nations have been cemented.
This is critical; as I wrote weeks ago, Saudi Arabia is the ironic linchpin that may secure the US dollar’s status as the global reserve currency.
Back in the 1970s when Richard Nixon took the US dollar off the gold standard, Saudi Arabia made a decision to continue its currency peg with the dollar.
Consequently, every other country on the planet that wanted to buy oil from Saudi Arabia (i.e. pretty much everyone) still needed to hold US dollars.
Saudi Arabia’s decision in the 1970s ensured that foreign demand for US dollars and US government bonds would continue.
Similarly, after what happened last week in Riyadh, it seems pretty clear that Saudi Arabia is making the same decision and will stick with the United States.
And that might just have bought America a little bit more time to get its act together. Hopefully it will be time well spent.
To your freedom,
James Hickman
Co-Founder, Schiff Sovereign and
Grey Swan
P.S. from Addison: If the private sector could grow substantially faster, say, 8-10% per year, then the U.S. government could keep running today’s big deficits without increasing our debt-to-GDP ratio.
The U.S. debt-to-GDP ratio spiked during the pandemic lockdowns. And even now after taming a bit, it’s still running at 122%.
At the 130% level, countries have historically hit a point of no return.
Once a debt crisis starts, it’s very hard to stop. Even with all the gusto of the Trump administration, a tipping point debt crisis is still a very real possibility worth keeping an eye as we do here.
We’ve been hearing that, “the U.S. economy will grow its way out of a crisis” since interviewing Warren Buffett, Alan Greenspan and Paul Volcker for IOUSA in 2005-06.
This time really would be different if we were able to get the U.S. economy to historic Chinese growth rates of the past two decades. Are we really willing to bet the farm on that possibility?
Your thoughts? Please send them here: addison@greyswanfraternity.com
