Our Looming Debt Crisis

Federal borrowing is unsustainable

The second Trump administration is looming with a laundry list of uncertainties. Given his profligate forty percent increase in the national debt first time in office financial gurus are speculating on a looming financial disaster. The General Accounting Office has posited that the recurrent fiscal deficit is “unsustainable”. The reliance on borrowed funds to fund the government emanates from a bipartisan cultural dysfunction although the Republican fixation with tax reduction gets more blame. Only once in living memory has the federal government seen revenue exceed expenditure, the Clinton administration. The trillion-dollar price tag on the protracted Afghan fiasco was financed with borrowed money. So far, borrowing has been a cheap ride because the dollar is the chief international currency. Federal debt has long been regarded as a safe harbor and is priced low.

This is likely to change. The realignment of world economies promoted by China and Russia have put a dent in the dollar trade monopoly. The current fiscal deficit of $1.83 TRILLION is a lot of money to float on the world credit market. The national debt has ballooned to over $33 trillion. By 2028 it is projected to be 106% of the annual gross domestic product. Annual interest on the debt has doubled since 2022 and is now $657 billion. A recession, when not if it happens, will decrease tax revenue, increasing the deficit and absorbing a higher percentage of tax revenue allocated to debt service.

A day of reckoning approaches. When the international market resists accepting all the U.S. federal bonds and notes except at high interest rates the American economy is likely to suffer multiple negative impacts. These include the precipitous reduction of the value of the dollar, inflation, and increased cost of borrowing and doing business. Given the average wage earner’s negative reaction to the recent price of eggs and fuel, imagine the scenario likely to unfold.