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The national debt recently hit the headlines after Moody's downgraded the U.S. credit rating.

But does the national debt really matter?

A lot of people think not, and most don't seem overly concerned about it.

In this episode of the Money Metals' Midweek Memo podcast, host Mike Maharrey argues that they should be worried, and he explains why. He specifically addresses how exploding government debt could impact the markets and urges gold and silver investors not to focus exclusively on the daily tariff news. 

"Don't miss the forest for the trees."

There is a lot of wisdom in that old saying, but as Mike points out, it's not easy to do when the media is fixated on trees 24/7.

"I think a lot of investors are missing the forest because they are fixated on one tree – tariffs."

Mike uses Tuesday's market movements as an example. 

"There was news that the EU was seeking to negotiate. The Dow was up over 700 points. Gold shed nearly 50 bucks. But I’m not sure it’s wise to sell gold just because the EU and the U.S. might negotiate some kind of trade deal. Or because Trump pauses some tariffs...maybe."

Mike concedes tariffs are a big deal right now and trade policy deserves plenty of attention.

"Trade is arguably the most significant economic policy focus for the Trump administration. But there are other big-picture things in the economy that are being drowned out by all the tariff noise.

"One of those is the national debt.

"Quite frankly, I think the debt issue will have far more impact on the economy in the long run than tariff policy. My guess is a lot of this will be resolved with negotiations, and when it’s all said and done, the tariff landscape won’t be substantially different than when it was when Trump took office. In other words, they’ll resolve the tariff problem.

"They ain’t gonna resolve the debt, ladies and gentlemen."

Mike notes that most people don't seem to care a whole lot about the debt. 

"This is a subject that tends to elicit shrugs. I get that too. People have been sounding alarms about the debt all of my adult life – and I’m not young. People assume, well, it hasn’t caused a problem yet, so it probably won’t. Meanwhile, you have the modern monetary theory crowd running around claiming that the U.S. can pretty much borrow all it wants because of the reasons. They use accounting tautologies to prove it. 

"And you know, I guess it’s not a problem…until it is. 

"You’ve probably heard me use this analogy. They are playing a game of kick the can down the road. The question is: how long is the road?"

The national debt occasionally worms its way into the headlines, as it did recently when Moody's downgraded the U.S. credit rating.Mike says when he first saw the headline, he thought, "Tell us something we don't already know."

"We’ve known for years that the federal government is in a downward fiscal spiral."

The problem is that there is no political will to do anything about it. Mike highlights data that show, despite all of the headlines about DOGE, spending is still going up, and the legislation working its way through Congress will increase the deficits even further. He also notes Congress wants to raise the debt ceiling by $5 trillion.

"That tells you everything you need to know about Washington D.C.'s commitment to reining in borrowing. Of course, this isn’t a surprise. It’s business as usual."

Mike gives an overview of the history of the debt ceiling, pointing out that it is nothing but political theater. 

"It’s clear the debt ceiling doesn’t do anything to slow down the fast-spending drunken sailors on Capitol Hill. But it does afford a great prop for politicians to grandstand."

Mike then delves into the market reaction to the Moody's downgrade. Stocks and Treasuries sold off, and gold rallied

"Again, this isn’t surprising. Moody’s reminded the world that the U.S. is mired in a fiscal mess with no political will to fix it. Why would you lend even more money to your irresponsible, drunk uncle? Let me just put it in the simplest terms possible. People are getting wary of holding U.S. debt. And what happens if people decide they are no longer willing to lend to Uncle Sam? Well, bond prices will fall, and yields will rise even more. That’s basic supply and demand."

Rising yields are a big problem for a government already paying over $1 trillion per year in interest expense. And it's only going to get worse. 

"So, where is the off-ramp here? Well, there isn’t one. This highway is going off a cliff, and we passed the last exit a long time ago."

Mike argues there is only one path forward. The Federal Reserve will ultimately have to monetize the debt. That means the central bank will intervene in the bond market through quantitative easing.

"The Fed can ease the pressure on the bond market by buying Treasuries and holding them on its balance sheet. This “demand” pushes prices up and yields down. In effect, QE turns Uncle Sam's debt (Treasury notes and bonds) into cash. This enables the U.S. government to borrow more money at lower rates than it otherwise could under normal market conditions. This is exactly how the government was able to borrow so much money during the pandemic."

But there is a big downside to this "solution" -- inflation.

"The problem is that the Fed runs QE with money created out of thin air. With a few keystrokes, the central bankers at the Fed transfer money that never existed until that moment to a bank or financial institution in return for securities. The central bank then holds these assets on its balance sheet, having injected the newly created money into the banking system. The effect is to increase the money supply, incentivize borrowing, and drive interest rates lower. Banks can take this newly minted cash and make loans. This increases overall liquidity in the financial system and theoretically stimulates lending, boosting the broader economy. Keep in mind, inflation properly defined is an increase in the money supply. So, when the Fed creates money out of thin air, it is driving inflation."

 Mike argues that despite the consequences of QE, the Fed will ultimately step in and monetize the debt.

"It has shown over and over again that when push comes to shove, it will pick inflation over a market meltdown."

So what does this mean for the precious metals investor?

"Well, think twice before you sell your gold and silver because you hear there was some tariff relief!"

Mike highlights some of the possible impacts of a bond market meltdown and QE on the markets. He concludes that it will ultimately exacerbate de-dollarization and could spark a currency crisis. That means you want to have real money and an inflation hedge -- gold and silver.

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