The US national debt has climbed to $40 trillion, but the bigger question is what decades of borrowing, low interest rates, and rising asset prices have done to the economy.
While stock markets continue to reach record highs, housing affordability has deteriorated, and wealth has become increasingly concentrated among those who already own financial assets.
Paul Musson, founder of Paddington Capital Management and author of Capital Offence: Why Some Benefit at Your Expense, argues that these developments are connected.
Speaking on the latest episode of Zero Sum, Musson said policymakers have prioritised rising asset prices over productive economic growth, leaving younger generations to shoulder the consequences.
The $40 trillion debt problem goes beyond the headline figure
A large national debt is not necessarily unsustainable if the economy grows faster than the government’s liabilities.
Musson acknowledged that policymakers can attempt to grow their way out of debt by expanding the economy faster than borrowing increases, reducing debt relative to gross domestic product over time.
His concern is that governments are increasingly relying on financial repression to manage their obligations.
Musson described financial repression as a combination of policies that increase the money supply, hold interest rates below levels that would otherwise prevail, and allow inflation to erode the purchasing power of creditors.
Donald Trump has openly suggested that inflation can help reduce the debt burden.
Donald Trump has suggested that inflation can help reduce the debt burden.
Musson argued that this approach would not eliminate the cost of government borrowing but transfer it to bondholders and other savers.
“Well, it gets rid of the debt at the expense of all the people who own those bonds, right?” Musson said.
For example, someone who lends money to the government may receive the promised nominal amount years later, but rising prices can substantially reduce what that money can buy.
In Musson’s view, reducing the real burden of public debt through inflation shifts the economic cost to those who hold financial assets rather than resolving the underlying problem.
Rising house prices have created winners by making housing less affordable
Musson’s strongest criticism concerns the policy focus on asset prices, particularly housing.
He said policymakers began treating rising stock and property prices as a way to stimulate economic activity, on the assumption that households would feel wealthier, borrow more and spend more.
He described the approach as sacrificing the real economy on the altar of higher asset prices.
The problem, he argued, is that rising house prices do not necessarily create additional productive capacity.
Musson pointed to his own home in a Toronto suburb, which he said was worth four times its 2001 purchase price in nominal terms.
“A house is not a productive asset. Our house isn’t producing four times as much stuff. Our house hasn’t quadrupled in size or moved to a new location.”
The property had not become four times larger or fundamentally changed its economic function, yet younger buyers would have to pay substantially more to acquire comparable housing.
He argued that this represents a transfer of wealth from people trying to enter the housing market to existing owners, rather than the creation of new wealth for society as a whole.
The consequences extend beyond property prices. When housing becomes increasingly expensive, younger households have less flexibility to save, invest, and start families.
Easy money has widened the divide between asset owners and everyone else
Musson also cited data he attributed to the Federal Reserve Bank of New York on the distribution of equity ownership in the United States.
According to the figures he discussed, the share of equity mutual funds owned by households in the 50th-to-90th income percentiles fell from 20% in 2001 to 12%.
Meanwhile, the top 10% increased their share from 79% to 87%. He also said the bottom half of Americans owned just 1% of equities and mutual funds, down from 2% in 2001.
Musson attributed much of this shift to monetary policies that pushed interest rates lower and supported financial asset prices.
Musson stressed that wealth inequality is not inherently wrong in a market economy.
He argued that differences in wealth can be justified when they reflect differences in what people produce or the value they create.
“So the income wealth disparity is okay as long as it’s fairly earned.”
Someone who produces more goods or creates greater value may reasonably accumulate more wealth.
His objection is to gains driven by policies that inflate asset prices rather than an equivalent increase in productive output.
For Musson, the distinction matters because a rising stock market can make existing investors wealthier without necessarily improving living standards for households that own few financial assets.
Musson calls AI a bubble but warns that the technology itself is real
The discussion also turned to artificial intelligence, whose investment boom has helped propel major technology companies and semiconductor suppliers to extraordinary valuations.
Asked whether the AI boom amounted to a bubble, Musson gave a direct answer: “Well, yeah, it’s definitely a bubble.”
He did not, however, dismiss the technology itself. Musson said AI was changing the world and would probably continue doing so, potentially at an accelerating pace.
His concern was whether investors could identify the companies that would ultimately benefit and whether the returns would justify the enormous sums being spent on infrastructure.
Citing figures from a MoneyWeek article, Musson compared the scale of the AI investment boom with earlier periods of technological expansion.
He said AI-related spending would need to produce an industry worth trillions of dollars annually to justify the investment being made.
He cautioned that investors buying into the theme without understanding the risks are speculating, even if some ultimately make substantial profits.
His advice was straightforward: investors should not confuse a transformative technology with a guarantee that every company associated with it will be successful.
What Musson would do with $10,000 depends on when he needs it
Asked what an ordinary person should do with $10,000, Musson emphasised that the answer depends on the investment horizon.
“If you’re putting that money away for the short term, or the medium-term, or the long term, because that will impact your decision of where to put it.”
For money needed in the short term, he favoured a high-interest savings account or a low-risk debt instrument offering a reasonable yield.
For longer-term capital, he said he preferred high-quality businesses with strong balance sheets, sustainable competitive advantages and the ability to create value for customers.
He also holds gold as a hedge against what he sees as the risks of monetary policy and financial repression, rather than primarily as a short-term investment.
Real estate could have a role, he added, but only when the purchase price is reasonable—a qualification that has become harder to satisfy in many markets.
Musson’s broader argument is that investors should focus on preserving purchasing power and owning productive assets rather than chasing inflated valuations.
His concluding message was that understanding how money, credit, and monetary policy work is essential to making better financial decisions. Without that understanding, he argued, people risk mistaking rising asset prices for genuine economic progress.
Watch the full episode of Zero Sum for the complete discussion with Paul Musson on public debt, monetary policy, housing affordability, wealth inequality, and the AI boom.
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