Some dates just stick with you, no matter how many years go by.
For anyone who was trading or watching markets in the 1980s, October 19, 1987 is one of those days. The Dow dropped more than 22% in a single session. No war. No terrorist attack. No major bankruptcy announcement. Just… poof. The market decided it had had enough, and the plunge felt like the floor disappeared.
I still remember exactly where I was when the numbers started flashing red. And apparently, I’m not the only one who can’t shake that memory.
A Former Treasury Secretary Just Dropped a Quiet Bomb
At a recent gathering of chief financial officers in Washington, one of the most respected voices in finance — someone who co-ran Goldman Sachs and later served as Treasury Secretary — stood up and told the room something that made the hair on the back of my neck stand up.
He said whenever he talks to market people these days, he gives them a single date to keep in mind: October 19, 1987.
Not 2000. Not 2008. 1987.
Why? Because right now he sees the same dangerous cocktail that existed back then: years of unsustainable trends, widespread belief that “this time is different,” and a collective shrug about risks everybody can see but nobody wants to fix.
“People stopped listening. And then one day the market just reset itself to reality.”
That’s the part that keeps me up at night.
The Debt Numbers Are No Longer Abstract
Let’s be brutally honest: most of us glaze over when we hear “debt-to-GDP ratio.” It sounds like homework.
But the numbers have reached a point where even the homework is screaming.
- Right now, publicly held federal debt is basically equal to annual economic output — roughly 100% of GDP.
- That’s double the 50-year historical average.
- Back in 2000 it was only 30%.
- Some credible forecasts (outside the official ones) see it heading toward 130-140% in the coming decade.
Think about that for a second. In a single generation we’ve gone from a debt load that was considered modest to one that would make most emerging-market finance ministers sweat.
And the truly scary part? We’re still adding to it at a rapid clip. The current deficit is running around 7% of GDP in what’s supposed to be a good economy. That’s peacetime, no-recession territory. Historically, deficits that large only happen during wars or deep crises.
Why 1987 Keeps Coming Up
Black Monday wasn’t caused by a single headline. There was no “Lehman moment.” It was a slow build-up of imbalances — overvalued stocks, new computerized trading that amplified moves, widening trade deficits, and a feeling that prosperity could roll on forever.
Sound familiar?
Today the imbalance isn’t portfolio insurance or program trading. It’s the United States government’s balance sheet. For years we’ve been told deficits don’t matter, interest rates will stay low forever, and growth will eventually take care of everything.
Except… rates aren’t low anymore. And growth strong enough to outrun the debt would have to be otherworldly — think 5-6% real growth sustained for a decade. That’s not happening.
“The timing is impossible to predict. But betting we can keep doing unsound things forever seems like a very bad bet.”
That sentence hit me hard.
The “Inflate Our Way Out” Escape Hatch
One scenario that almost no one wants to talk about openly is the temptation to monetize the debt — essentially have the central bank print money to keep borrowing costs artificially low.
It’s been done before in other countries. It rarely ends well.
Higher inflation erodes the real value of debt, sure. But it also erodes purchasing power, hammers bondholders, distorts every investment decision in the economy, and — here’s the kicker — markets figure it out pretty fast.
Once investors start demanding much higher yields to hold U.S. Treasuries because they no longer trust the game, the interest bill alone becomes crushing. We’re already spending more on debt service than on defense. Push rates up another couple hundred basis points and the budget breaks in ways that can’t be papered over.
It’s Not Just the Debt — It’s the Complacency
Every bubble has its own story. Dot-com had internet eyeballs. 2008 had “housing only goes up.” Today we have trillion-dollar AI promises and “soft landing” religion.
I’m not here to say AI isn’t transformative — it clearly is. But pouring hundreds of billions into data centers that won’t generate cash flow for years while running massive losses is… familiar territory for anyone who remembers 1999.
The difference is that back then the federal government wasn’t already maxed out. If a growth scare hits and revenues crater while spending is locked on autopilot, Washington’s options are ugly: massive austerity (politically impossible), default (unthinkable), or the inflation route.
None of those are “soft landing” compatible.
What Would Actually Fix This?
Stabilizing the debt at current levels — not even reducing it, just stopping the hemorrhage — would take real money.
Rough math from serious budget analysts suggests getting the deficit down from ~7% of GDP to something closer to 4.5% requires a mix of roughly:
- 2 percentage points of GDP in higher revenue (that’s about $550 billion a year in today’s dollars)
- 0.5 percentage points in spending cuts (another $140 billion or so)
In plain English: some combination of tax increases and entitlement restraint that neither political party has shown any appetite for.
Growth alone won’t do it. Even if we managed 3% real growth for a decade — optimistic — the debt ratio would still climb.
So When Does the Music Stop?
Nobody knows. That’s the honest answer.
Japan has run debt above 200% of GDP for years and nothing dramatic has happened — yet. Maybe the U.S. gets another decade of kicking the can.
Or maybe one random Tuesday the bond market wakes up, looks at the trajectory, and decides 4.5% on the 10-year isn’t enough compensation anymore. A 200-basis-point move higher in yields would add trillions to borrowing costs almost overnight.
And just like 1987, there might not be a neat headline to point to. Just a collective realization that reality and markets have drifted too far apart.
What This Means for Investors Right Now
I’m not ringing the “sell everything” bell. Markets can stay irrational a lot longer than most of us can stay solvent.
But I am paying closer attention to a few things:
- How quickly Treasury yields move on any hint of fiscal deterioration
- The dollar’s behavior — a sudden leg lower would force the issue fast
- Credit spreads — they’re still tight, but any widening would be an early tell
- Real assets and inflation hedges — not because I’m predicting 1970s inflation tomorrow, but because the option value is rising
Most of all, I’m trying to avoid the 1987 mindset: “It’s been fine for years, so it’ll stay fine.”
History doesn’t repeat, but it does rhyme. And right now the rhythm feels uncomfortably familiar.
Look, maybe nothing dramatic happens for years. Maybe we muddle through with 2% growth and 5% yields and slowly inflate the debt away without anyone really noticing.
Or maybe one day — with no obvious trigger — the screens just turn red.
Either way, October 19, 1987 is worth keeping in the back of your mind.
Not because it predicts the future, but because it reminds us how fast the future can arrive when nobody is paying attention.
