One of the market’s most optimistic strategists is sounding the alarm: a 2008-style financial crisis may be on the horizon, driven by the unsustainable trajectory of U.S. government debt.
Legendary investor and seasoned wealth advisor John Demmert warns that the U.S. financial system is facing a critical inflection point. The growing weight of debt interest payments, if left unchecked, could trigger a significant devaluation of U.S. Treasurys and destabilize the broader economic framework.
“Given the current trend of U.S. debt issues, it’s very likely we see another credit rating downgrade in the next year or two,” Demmert said. “Unless we solve or slow down the rate of our budget deficit, we’re heading in that direction.”
For RIAs and independent wealth advisors, these warnings carry substantial implications. While past credit downgrades — like those from Fitch in 2023 or S&P in 2011 — led to short-term volatility without long-term collapse, Demmert argues that the situation is fundamentally different today. The fiscal runway is shortening, and assuming the markets will continue to shrug off bad news may be a dangerous miscalculation.
“We’ve managed to skate past downgrades before, but the assumption that we can spend without consequence is naive,” Demmert said. “Someone has to get serious about reigning in government spending. It’s the only way we avoid a systemic breakdown.”
A new effort, known as the Department of Government Efficiency (DOGE), aims to address this exact issue. Spearheaded by Elon Musk, DOGE is pushing for aggressive spending cuts to reduce the federal deficit. The initiative has attracted headlines — and controversy — for its bold approach.
Demmert sees merit in the goal but questions the strategy. “The goal of trimming Washington is the right one,” he said. “The medicine doesn’t taste good, but it gets the patient off the ground. Whether DOGE is the right prescription — that’s another story.”
Pressed for more, Demmert elaborated: “In theory, it’s a good idea. In practice, it feels like a bull in a china shop. It’s being executed without enough thought or planning. I would’ve liked to see a more methodical approach — a clearer diagnosis before treatment.”
Demmert invoked the concept of Chesterton’s Fence — the idea that you shouldn't tear something down without first understanding why it was put there. He believes DOGE, in its haste, may have disregarded the underlying complexities of federal budgeting, potentially undermining the very stability it aims to restore.
“The market is uneasy, and rightly so,” Demmert said. “There’s a disconnect between good intentions and poor execution. That combination can be dangerous — especially at a time when investor confidence is already fragile.”
For RIAs managing client portfolios, Demmert’s insights are a call to action. Now is the time to revisit portfolio allocations, assess fixed income exposures, and prepare for a macroeconomic environment where fiscal missteps could translate into real losses.
Demmert emphasizes that advisors must not only navigate short-term volatility but also educate clients about the structural risks in the system. “You’ve got to be proactive,” he said. “Diversify. Stay liquid. Don’t take credit quality for granted.”
He also recommends paying close attention to fiscal policy signals coming out of Washington. “The direction of the debt debate will influence everything — from Treasury yields to equity multiples. Advisors who stay ahead of the curve will be in the best position to protect and grow client wealth.”
In a landscape where systemic risks are rising and political will for reform remains uncertain, Demmert’s warning is clear: complacency is not an option. Wealth advisors must take a leadership role — not just in asset management, but in advocating for financial prudence and strategic resilience.
“It’s easy to believe that things will keep going the way they always have,” Demmert said. “But that’s how people got blindsided in 2008. We’re not there yet — but we’re heading in that direction unless real change happens.”
