Mathew Burrows, and Josef Braml
A financial crisis triggered by the ever-compounding national debt could be closer than you think.
Big vessels, such as the US government, are difficult to change course. This is the reason why the Treasury Department’s RMS Titanic may soon crash. With the national debt surpassing $36 trillion and significant refinancing risks looming in 2025, immediate policy interventions are essential to avert a financial catastrophe. Faith in Trump’s TACO (“Trump Always Chickens Out”) brinkmanship may not been enough to stem investors’ growing disenchantment with American profligacy.
The Debt and Deficit Iceberg
The United States is structurally committed to high spending and low taxation, with both parties reluctant to enact meaningful reform. The fiscal system is unsustainable, with both the state and its citizens living well beyond their means, borrowing to sustain consumption and ego-driven expectations.
Since 1970, the budget deficit has persisted, except for a four-year period between 1998 and 2001. But the 2007–2008 financial crisis—when the government bailed out banks and expanded the money supply—saw the budget deficit jump. Then, it took another hit during the COVID-19 pandemic when most Americans received cash payments to help them survive the economic downturn.
Similarly, the US national debt has nearly doubled in a decade, from under $24 trillion in 2014 to nearly $36 trillion in 2024, exceeding its historical peak following World War II. The debt-to-GDP ratio will reach 122 percent by 2034. The United States has had five consecutive years of budget deficits exceeding $1 trillion, and in the last six months, its deficit has grown to more than $1.3 trillion.
Trump’s budget for 2025–26 has not been finalized. Still, despite his proposed sharp cut in discretionary spending, the boost of defense expenditures and extension of current tax cuts are estimated to add around $5 trillion over 10 years to the existing budget deficit.
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