Lee Samaha, The Motley Fool

Sat, Jun 21, 2025, 1:10 PM5 min read

• As Elon Musk argues, rising national debt and debt servicing costs are curtailing the growth prospects of the U.S. economy.

• More debt could lead to higher interest rates over the long term.

• These stocks are beneficiaries of rising interest rates.

• 10 stocks we like better than Prudential Financial ›

The highly public spat between Tesla CEO Elon Musk and President Donald Trump over the One, Big, Beautiful Bill highlights an ongoing, decades-long debate over national debt. The focus of this article is to explore a potential scenario and suggest a way to invest in protection against it.

That path is via life and retirement insurance companies like Prudential Financial (NYSE: PRU), MetLife (NYSE: MET), and Corebridge Financial (NYSE: CRBG). Here's why.

This chart gets to the heart of the matter. As shown below, the U.S. national debt has increased substantially, and so has the level of debt in relation to the country's gross domestic product (GDP). The shaded areas show recessionary periods, including the financial crisis of 2008-2009 and the pandemic, whereby GDP contracted and spending soared, so naturally, the debt-to-GDP ratio did, too.

Still, the response in both cases was the same: more spending and more debt.

Musk's view is that the national debt issue needs to be addressed as it's out of control and has the potential to saddle Americans with an unsustainable debt burden, which the bill will exacerbate. To be fair, the Trump administration's aim is not to increase the deficit as officials believe it will lower the deficit, through implementation of mandatory savings and promoting GDP growth.

Again, this is not the place to debate that matter. However, what if Musk is right and the U.S. continues down the path of rising debt?

Rising debt levels and debt servicing payments imply more debt issuance. Simple economics argues that, unless demand improves, the rising supply of debt will lead to a rise in the price of debt. In other words, long-term interest rates will rise, and could be higher than the market is expecting.

The chart below indicates that the market is comfortable with the matter and isn't attaching a significant premium (beyond the usual premium to reflect the increased risk of holding longer-dated debt) to long-term interest rates over medium-term rates.

But the market could be wrong. And while Musk's primary concern appears to be the difficulty of cutting rates caused by rising debt, it's only a short step away to argue that rising debt could lead to higher long-term interest rates.