Howard Marks says rising federal debt could eventually weaken the dollar. But investors who flee U.S. stocks may swap one risk for another, so his memo favors diversification over a single hedge.
On September 17, 2026, Treasury data put gross federal debt at about $40.1 trillion. Howard Marks's latest investing memo treats a weaker dollar as a serious possibility, not a certainty. Investors who move out of U.S. assets to protect themselves could take on new risks without escaping the old ones.
Borrowing costs already show the strain. Higher long-term rates raise the government's financing costs. They can also weigh on stock valuations, household borrowing and business investment. The challenge for investors is to account for debt risk without abandoning assets that may still belong in a diversified portfolio.
The Congressional Budget Office projects publicly held federal debt rising from 101% of GDP in 2026 to 175% by 2056 in its baseline scenario. Under an alternative scenario with higher interest rates, it reaches 222% of GDP by 2056.
Debt raises the stakes
The figures in Marks's memo help explain why concern has grown. The national debt passed $40 trillion in August, more than doubling since 2017. Total debt is above 120% of GDP. Publicly held debt, which excludes amounts the government owes to itself, has topped 100% of GDP. Treasury data put gross federal debt at about $40.1 trillion on September 17, 2026, with publicly held debt near $32.4 trillion.
Interest costs reached $1.25 trillion in 2025. That was more than the defense budget and equal to 18.5% of tax revenue. Separately, the CBO's estimate for fiscal year 2026 puts net interest costs at roughly $1.0 trillion to $1.05 trillion.
The main spending pressures include Social Security, Medicare and defense. Marks sees hard choices ahead. Restraining those costs would be politically and practically difficult, while there is little appetite for a major tax increase. Faster economic growth could lift tax receipts, but growth driven by inflation would not necessarily ease the debt burden. Inflation can keep interest rates high and increase government payments tied to the cost of living.
Productivity growth offers a better path. It can support real output without relying on inflation. Artificial intelligence may help raise productivity and lower costs, but that outcome is not established. The memo cites real GDP growth of 1.5% in the latest quarter, down from 2.1% in the first quarter of 2026. Those figures show growth, but they do not prove productivity gains will be large enough to change the fiscal path.
In an alternative long-term scenario, the CBO assumes an average annual interest rate of about 4% on publicly held federal debt and an average primary deficit of 2.1% of GDP.
The CBO's long-term debt projections warn that debt will keep growing as a share of GDP without policy changes. Higher interest rates push projected debt and deficits above the baseline path.
A dollar risk without a simple hedge
If debt and deficits keep outpacing the government's ability to finance them, Marks says currency debasement is one possible result. Inflation can reduce the real value of existing dollar-denominated debt. It also cuts the purchasing power of cash and can hurt consumers and investors. This is a scenario to consider, not a prediction that a dollar crisis is near.
Long-term Treasury yields have climbed. The 10-year yield rose from below 4% in March to 5.18% when Marks wrote the memo, its highest level since 2007. The 10-year yield has reached its highest level since 2007, while 30-year yields have climbed to highs not seen in nearly two decades, according to recent Treasury-market reporting. Higher rates can weigh on stock valuations because investors discount future corporate earnings at a higher rate. Debt concerns matter even before a currency crisis. A recent yield-market analysis examined how a 10-year yield above 5% can pressure stocks and borrowing costs.
Foreign stocks and bonds could rise in dollar terms if the dollar falls. But overseas markets have their own fiscal and political risks. The U.S. is also home to many of the world's strongest and most innovative companies. Marks warns that moving money abroad to hedge against a problem that may be years away can go wrong for other reasons. The currency decline investors fear has not happened. The memo does not call it inevitable.
Keep the portfolio diversified
Gold and cryptocurrencies are possible hedges, but neither is a dependable, risk-free answer. They may preserve purchasing power in some circumstances. Cryptocurrencies remain relatively untested, and neither category necessarily pays dividends or interest. If rates rise sharply to contain inflation, assets without income may struggle to compete with interest-bearing investments.
Selling stocks and shifting into cash or bonds is not automatically safer. Inflation can cut the real value of cash and fixed-income payments. Higher rates can also pressure bond prices and company valuations. U.S. businesses that rely on imported goods or materials could face higher costs if the dollar weakens. Inflation may also squeeze consumers' ability to spend.
A measured response is to check whether a portfolio is diversified by geography and by where companies earn their revenue. Businesses with pricing power may be better able to absorb rising input costs, though that does not remove market risk. Among the Magnificent Seven, Meta Platforms had the largest share of revenue from outside the U.S. last year, at 62%, according to the memo. That shows international exposure. It does not prove the stock will outperform.
For U.S. investors, diversification means holding assets with different sources of risk instead of betting the portfolio on one dollar forecast. Foreign investments add currency exposure. Stocks may keep their growth potential, but they can fall in value. Bonds can provide income, yet remain sensitive to interest rates. Cash offers liquidity, but inflation can erode its purchasing power.
The right balance depends on an investor's goals, time horizon, tax circumstances and capacity for losses. Marks's central case is clear: debt deserves attention, but a disciplined investment plan makes more sense than a dramatic move based on a crisis that has not happened.
