The US National Debt: Is America's $37 Trillion a Ticking Time Bomb?

America’s national debt is rapidly approaching $37 trillion. That is roughly $108,000 for every man, woman, and child in the country—more than most people make in a year. The number is so large that it has lost the power to shock, which may be the most dangerous thing about it.

And yet, a few short decades ago, the trajectory pointed in exactly the opposite direction. Forecasters projected that the United States would be completely debt-free by 2013. Politicians were not arguing about how to close a deficit; they were debating what to do with the surplus money piling up in the Treasury. The past, as the saying goes, is another country.

So what went wrong? The answer is a story of short-sighted political goals and the dangerous belief that America was somehow different from every other country that had ever spent itself into oblivion. Both parties kicked the can down the road, convinced that tomorrow’s politicians would figure out how to pay for today’s promises.

They were wrong. The United States now spends more on interest payments alone than it does on national defense, and other countries have walked a similar path before—Greece watched its economy shrink by a quarter during its debt crisis, while Argentina has defaulted a staggering nine times, curdling a once-prosperous nation into one defined by a crippled financial system and years of hyperinflation.

But could this really happen to the United States, long the place where the world parks its money for a safe return, the country whose dollar serves as the global reserve currency? And if it could, can America pull itself together in time to avoid catastrophe? The honest answer is that the danger is not imminent collapse but a slow erosion of the very advantages that have made the country exceptional—and that erosion is now firmly underway.

From Surplus to Spiral

After the close of World War II, America found itself in a situation broadly similar to the one it occupies today: saddled with enormous wartime debt. The difference is in the response. Rather than ignoring the burden, the country took it seriously and began aggressively paying it down.

For nearly three decades, the debt-to-GDP ratio fell consistently, reaching a low of just over 30% in 1974. The final phase of the Cold War reversed the trend—Ronald Reagan’s massive military buildup to counter the Soviets drove debt back up to 48% of GDP by 1993—but as that conflict drew to a close, the United States regained its financial footing.

By the dawn of the new millennium, debt had fallen all the way to 33% of GDP. President Bill Clinton was not merely balancing budgets; he was running surpluses. For four consecutive years, from 1998 through 2001, the federal government took in more money than it spent—something that has not been seen since. That achievement flowed from a combination of factors Clinton had not initially planned for so much as stumbled into and then navigated with good political sense: defense spending cuts enabled by the Cold War’s end, the so-called “peace dividend”; modest tax increases on higher earners, large enough to boost revenue without being anti-business; and economic growth that lifted receipts well beyond what anyone had projected.

At this point you might be wondering something along the lines of: every country has debt, right? What is the problem? The answer is that debt is not inherently problematic. Government debt differs from personal debt in a crucial way.

Rather than being something best eliminated as quickly as possible, it serves important economic functions. Public bonds provide safe assets for global investors, help central banks manage monetary policy, and allow countries to spend needed relief money during recessions. The widespread confidence in American and German issued debt, for instance, has helped make both powerhouses on the international stage, with direct benefits to their citizens.

As with cake, though, there can be too much of a good thing. While there is no single, universally agreed-upon “ceiling,” economists generally consider debt manageable when it sits below 70 to 80 percent of GDP. There is similar agreement that debt exceeding 120 percent of GDP becomes difficult to sustain and begins to crowd out other government spending. Italy’s debt, for example, currently sits at about 140% of GDP, and the country has struggled with anemic growth for years, averaging less than 1% annually since 2000.

Keeping debt at around 70 percent of GDP is like treating yourself to a slice of sponge cake once or twice a week—a normal, delicious part of life. Start having it every day, and that way lies diabetes.

Japan is the notable exception, carrying debt well over 230% of GDP for more than two decades without a crisis—but only because of extremely unusual circumstances: domestic ownership of the debt, central bank cooperation, and a willingness to accept decades of economic stagnation in exchange for avoiding financial collapse. It is not a model anyone would choose to copy.

The United States, by contrast, reached its current debt levels through a very different path. America in 2001 was still enjoying a budget surplus. Then, on September 11th of that year, the terrorist attacks that would go on to shape so much of US foreign policy in the early twenty-first century also upended the nation’s financial trajectory.

The country launched what would become the War on Terror across multiple continents. Geopolitics aside, running deficits in wartime has historical precedent—major conflicts have always required borrowing to fund immediate needs. America’s fiscal history, until very recently, showed a clear pattern: debt spikes during existential crises, followed by debt reduction during periods of peace and economic expansion.

What makes America’s current debt trajectory particularly alarming is not just its size—it is the circumstances in which it was accumulated. Previous debt spikes had clear justifications: World War II, the Cold War, and the like. But most of America’s current debt was piled up during a peacetime, growing economy—precisely the times when countries should be paying down their debt and restraining their deficit spending. This represents a fundamental break from fiscal history: America has normalized crisis-level spending during normal times.

It was the financial crisis of 2008 that truly shattered the remaining vestiges of spending restraint. Faced with the financial sector teetering on the verge of collapse and contagion from the housing market spreading across the economy, Washington stepped in with unprecedented bailouts. Federal spending jumped from $2.7 trillion to $3.5 trillion in just a few years, with no new way of paying for the enormous hike. The country breached a symbolic threshold it never had before: its very first trillion-dollar deficit.

The economic situation certainly warranted action. Unemployment spiked to 10%, GDP contracted by an eye-watering 8.4%, and there were genuine fears of complete financial system collapse. Economists across the spectrum broadly agreed that intervention was necessary, even as they disagreed about the precise scale and method.

The federal government’s response—whether or not you judge it justifiable at the scale it eventually reached—is a story for another day. What matters here is just how much that response cost, and the expectations it set. Moves such as the bailout of Wall Street, even though the government eventually reclaimed all the money it lent out, with interest, were deeply unpopular for a country suffering financially, and they signaled that fiscal constraints would be suspended during crises.

This problem snowballed because spending levels, as well as overall monetary policy, never fully normalized after 2008. Even as the economy recovered and unemployment fell from 10% to less than 5%, deficits persisted at levels that would once have been considered crisis-level just a decade or two earlier. Debt rose from 71% in 2008 to 103% by the end of the Obama years. Those debates about how to spend budgetary surpluses became a distant memory.

The justification was reasonable, especially if you put yourself in the shoes of policymakers at the time: the economy remained relatively fragile, many economists were calling for continued stimulus, and nobody wanted to be blamed for triggering another 2008-style collapse. Part of that stimulus came from the Federal Reserve, which sets monetary policy for the country. For years, the Fed held interest rates low to ensure access to cheap credit—not just during the crisis, but for years after.

When the Fed lowers rates, it reduces the cost of borrowing throughout the economy, encouraging banks to lend and businesses to invest. That achieved its goal of encouraging private-sector lending, but it had a secondary effect: it was not just banks and businesses getting credit on the cheap. The federal government could also borrow at historically low rates, making deficit spending appear virtually costless.

This created an illusion that debt did not matter. As it would soon turn out, that illusion was not merely wrongheaded—it was actively dangerous.

When the Music Stops

The era of free money is officially over, and has been for some time. Following the explosive return of inflation the world over in 2021, central banks were forced to hike interest rates to cool down their rapidly overheating economies. Many criticized officials for waiting too long—the Federal Reserve held off until inflation had hit 9 percent stateside—but hike they ultimately did, a move that, several years on, can be seen as one of the turning points away from inflation.

These moves do not just put a damper on consumer spending; they raise the cost of borrowing money across the board, including for governments. The average interest rate on marketable government debt has risen from 1.84% to 3.36%—an 83% jump that translates directly into hundreds of billions in additional borrowing costs. New government debt today is being issued at 4 to 5 percent. The 10-year Treasury, which serves as the benchmark for the cost of government borrowing, has moved from under 1% during COVID to consistently over 4%.

This is something of a double-whammy for Washington: not only is the new debt being added on costing more thanks to the higher-rate environment, so is the old. Unlike a homeowner with a 30-year mortgage whose rate is fixed, the government does not have such a luxury. Roughly 89% of total US debt consists of marketable securities—think Treasury bills, notes, and bonds that must be rolled over when they mature.

The average maturity of this debt is 71 months, or just shy of six years. This comparatively short maturity structure means that over half of all publicly held debt will require refinancing within the next three years. At current market rates, the overwhelming majority of debt being refinanced is moving from near-zero interest rates to rates far more reflective of today’s borrowing environment.

For a government that built much of its spending plans around essentially free money, this represents nothing short of a fiscal earthquake. With roughly $14 trillion in government debt requiring refinancing over the next three years, the scale of the challenge becomes staggering.

Interest costs surged 41% from 2022 to 2023 alone. The CBO projects that interest costs in 2025 will total $952 billion—America is rapidly approaching its first trillion-dollar interest payment year. In a remarkable reversal, the country so widely known for its robust military spending is now paying more in interest than it spends on national defense.

To put this into perspective, America’s annual interest payments now exceed the entire GDP of countries like Saudi Arabia and Switzerland. Money that once might have built roads, funded research, or simply stayed in taxpayers’ pockets now flows to bondholders for the privilege of having borrowed in the past.

This shift away from cheap money represents more than just higher borrowing costs—it fundamentally reshapes the fiscal mathematics that have governed American politics for over a decade. Yet before declaring this a full-blown debt crisis, the numbers deserve to be put in perspective.

Reality Check

While it is difficult to argue that US fiscal discipline has been anything short of non-existent over the last few decades, the situation Washington finds itself in today is not impossible to come back from. This is worth stating plainly, because alarm and fatalism can be just as paralyzing as complacency.

Despite mounting costs and alarming projections, Treasury auctions continue to clear successfully every week, with domestic and foreign buyers continuing to purchase American debt. The US remains widely viewed as a reliable borrower who will make good on its obligations, and the dollar remains the largest foreign reserve currency in capitals from New Delhi to Tokyo. Interest rates, while higher than the emergency lows of recent years, remain reasonable by historical standards. The current 10-year Treasury rate of around 4.5% sits well below the 7-8% rates that were common in the 1990s, and far below the double-digit rates of the early 1980s.

One measure that economists watch closely is the relationship between interest rates and economic growth. This relationship determines whether debt will become easier or harder to manage over time, and can signal future debt crises before they happen. When economic growth is outpacing interest rates, debt becomes less burdensome even if the total amount grows—a path Washington has gone down for years. It is only when interest rates exceed growth that debt becomes mathematically harder to sustain.

Post-2008, the US economy has enjoyed some of the most consistent growth in the developed world, averaging between 2 and 3 percent, while government borrowing costs averaged 1 to 2%. This meant that debt could continue to grow without becoming a larger burden relative to the faster-growing GDP. For the first time in over a decade, that relationship is changing. With a slowing economy and government borrowing costs running in the 4-5% range, the underlying laws of debt sustainability have shifted in the wrong direction.

So just how bad is it? As of this writing in mid-2026, the US is not in a debt crisis and does not appear poised to be in one anytime soon. Rather, it is the direction Washington has gone down that has global markets concerned. The trajectory, not the present moment, is the warning sign.

However, one caveat has to be placed here: current projections are just that—current. They look at trends that exist right now and extend them out into the future, usually blind to alternative forces that could disrupt them. In this case, these assessments take as a given steady economic growth without any major downturns over the next decade. That feels increasingly dubious—after all, it is not as though the world has been a stable place free of massive and consistent shocks to supply chains and geopolitics.

During recessions, the budget gets hit from both sides. Tax revenues collapse as people lose their jobs, corporate profits shrink, and capital gains evaporate. Meanwhile, the “automatic stabilizers” that kick in, from unemployment benefits to other safety-net programs, expand automatically when conditions worsen, without any action taken by legislatures. They are designed to soften the human blow of a downturn, and they do—but they are expensive.

Past events have proven just how expensive these stabilizers can be. In the 2008-9 recession, federal revenues fell by $400 billion while spending increased by $800 billion, creating a $1.2 trillion swing in the deficit over just two years. Keep in mind that this happened when the debt was only 77% of GDP and interest rates fell to near-zero to cushion the cost of spending. COVID was another story entirely.

The federal deficit exploded from $984 billion in 2019 to $3.1 trillion in 2020. While much of this reflected a deliberate policy choice of generous benefits and stimulus payments, a significant portion came from automatic responses.

The next recession will hit an economy already carrying the weight of a 122% debt-to-GDP ratio, with interest rates that have limited room to fall and massive existing deficits that leave little fiscal space for response. If unemployment rises to even 7-8%—well below the 10% peak of 2009—automatic spending increases could easily add $500-700 billion annually to the deficit while revenues fall by similar amounts. Combined with the existing $1.7 trillion annual deficit, a moderate recession could push total borrowing needs to $3 trillion annually or more. At that point, the refinancing crisis becomes a genuine funding crisis, as Treasury auctions struggle to absorb unprecedented quantities of new debt while private markets demand higher and higher yields to compensate for the risk.

The Demographic Time Bomb

While rising interest rates grab headlines, they are not actually the primary driver of America’s long-term fiscal crisis. That distinction belongs to an unstoppable force: demographics. Interest rates can fall again; a generation cannot un-retire.

The Baby Boom generation—76 million Americans born between 1946 and 1964—is retiring at a rate of 10,000 people per day. This massive cohort is transitioning from taxpayers to beneficiaries of Social Security and Medicare at precisely the moment when birth rates have fallen to historic lows. The pipeline of new workers who would fund those benefits is narrowing just as the demand on the system swells.

The fallout from this math is brutal. In 1960, there were 5.1 workers for every Social Security beneficiary. Today, that ratio has fallen to 2.8 workers per beneficiary, and it is projected to drop to just 2.3 by 2040. Social Security and Medicare together account for $2.4 trillion in annual spending—roughly 60% of the federal budget.

These programs are not just large; they are growing automatically as more people become eligible and as healthcare becomes more expensive. The Congressional Budget Office projects that without reforms, spending on major health programs will grow from 5.9% of GDP today to 8.9% by 2054.

This demographic shift is irreversible and predictable—everyone who will turn 65 in the next 20 years has already been born. There is no policy lever, no economic boom, and no election result that can change that underlying fact. Unlike military spending or discretionary programs that can be cut during fiscal crises, these commitments represent promises made to Americans who spent decades paying into the system. To understand just how serious the consequences could be if America fails to address this challenge, it helps to look at what happens when other countries have let their debt spiral out of control.

How Bad Can This Get?

While studying economics, it can be easy to get so bogged down in the numbers that you lose sight of what they actually represent: real people, living real lives. When governments lose control of their finances, the human cost is devastating. You do not have to search far for stories of lives being completely upended by such irresponsibility.

Greece’s debt crisis began to make international headlines in 2010, when the country revealed that its budget deficit was actually 15.4% of GDP—nearly double what had been reported. That number is enormous. By way of comparison, even other countries hit by Europe’s debt crisis—like Spain and Portugal—had budget deficits of around 9-11% of GDP, while Ireland peaked at 12%. Greece’s deficit was in a league of its own.

International lenders, furious at the deception from Athens, demanded harsh spending cuts in exchange for badly needed bailout funds—triggering an economic crisis.

Ultimately, Greece’s economy collapsed by 25% from 2010 levels. Unemployment crept as high as 27%, with youth unemployment surpassing 50%. The austerity measures were brutal: public employees saw dramatic salary cuts, pensions for the elderly were slashed, and VAT taxes increased from 19% to 24%. You get the picture.

It was ugly, full stop. The social fabric in Greek society began to unravel, with the neo-Nazi Golden Dawn party going from obscurity to winning 18 parliamentary seats. When people lose faith that the system can provide for them, extremism finds fertile ground.

Argentina’s financial story is more of a recurring nightmare than that of Athens. Having defaulted on its debt more times than any other nation on earth, the country’s 2001 debt crisis shows just how damaging these episodes can be. That year, Argentina defaulted on $93 billion of external debt—the largest sovereign default in history at the time. In order to avoid bank runs and the collapse of the financial sector, the government imposed strict capital withdrawal requirements, allowing people to access only limited amounts of their own money each week.

The impact on society was extreme. Middle-class families who had worked their whole lives found their savings evaporating day by day as the peso lost value. To make matters worse, the banking freeze meant people could access only small amounts from their accounts each week, essentially locking them out of their own money. The crisis left many in poverty and created a trauma surrounding the banking sector that lingers in Argentine society to this day.

These are not abstract macroeconomic events; they are stories of ordinary people watching a lifetime of work vanish.

Why America Is Different—For Now

The United States finds itself better off than these crisis states due to a few advantages that—at least for the time being—reduce the risk of a debt crisis of similar magnitude. However, these are neither permanent nor bulletproof at ensuring the US can avoid one forever. Understanding what protects America also reveals exactly how that protection could fail.

The most important difference is that America borrows exclusively in its own currency. When Argentina needed dollars to service its debt but could only collect taxes in pesos, a currency crisis became inevitable. Greece, locked into the euro, could not devalue its way out of trouble or print money to service its debts. The US government, by contrast, can always create dollars to meet its obligations.

This does not mean money printing is wise—it can trigger inflation—but it eliminates the immediate risk of involuntary default that has plagued other heavily indebted nations. America cannot be forced to miss a payment in the way Argentina was; it can only choose to debase the value of what it pays.

The dollar’s role as the world’s primary reserve currency provides what economists call an “exorbitant privilege.” Foreign central banks hold roughly $7 trillion in dollar-denominated assets, creating constant global demand for US government debt. This captive market allows America to borrow at lower rates than comparable countries and ensures a ready pool of buyers for Treasury securities even during times of stress. When the world is frightened, it has historically run toward US debt, not away from it.

This advantage is not guaranteed permanently, though. The dollar’s reserve status depends on continued global confidence in American economic stability and responsibility—which can erode through poor governance. Furthermore, the government cannot keep interest rates low forever. In the aftermath of the COVID inflation surge, the Federal Reserve had to raise interest rates to cool the economy; things had been too easy for too long.

The tools that shield America from a Greek- or Argentine-style collapse are real, but they are a buffer, not a guarantee.

So we know that an American debt crisis would not unfold quite like they did in Greece or Argentina. Nevertheless, it would still be devastating—just in different ways. Given the dollar’s central role in the global economy and the widespread holdings of US Treasuries as the gold-standard of a safe investment, the shock would cascade globally—and fast.

As the global community began to lose faith in US debt, interest rates on that debt would skyrocket as yields were pushed up. Interest rates on everything from mortgages to credit cards to corporate borrowing costs would soar, grinding the economy to a standstill. Unlike previous financial crises where investors fled to the safety of US Treasuries, there would be no obvious safe haven to retreat to—creating unprecedented market volatility. The very asset that has always been the world’s refuge would be the source of the panic.

The human cost would also be significant. Critical government spending could face delays as officials struggle to prioritize spending with limited borrowing capacity. Even if the Federal Reserve intervened by purchasing government debt directly, the resulting inflation would devastate retirees and anyone on fixed incomes. The political fallout would be intense, with finger-pointing between parties potentially paralyzing normal legislative functions.

Most concerning, the crisis would be uniquely American: unlike Greece or Argentina, which could receive international bailouts, the country that issues the world’s reserve currency would have nowhere to turn for help. There is no institution large enough to rescue the United States.

Illusions of Solutions

The most challenging aspect of America’s debt problem is that nearly every solution being rolled out from both parties is largely worthless. Republicans promise to eliminate waste and cut bureaucracy. Democrats vow to tax billionaires and close corporate loopholes. Both sides offer plans that sound like they take this seriously and offer the country a path out of this looming fiscal cliff, but in reality, the most they stack up to is a drop in the bucket.

This is not about political preferences or ideology; it is about maths. The federal government is currently spending significantly more money than it takes in and is borrowing to make up the difference. Whether the preferred path is tax hikes, spending cuts, or a combination of the two—and it is increasingly likely to need to be a combination of those two—it is going to have to be a commitment with bipartisan support that can stand the test of time for years to come without collapsing after the next midterm election.

To demonstrate what that means, two recent efforts from each party are worth a closer look. Start with the most recent, and most infamous: DOGE.

Elon Musk’s Department of Government Efficiency provided an almost perfect case study in how quickly ambitious cost-cutting plans collide with fiscal reality. When DOGE first broke onto the scene in January of this year, Musk claimed that his team could cut $2 trillion from the federal budget without Congress—nearly a quarter of total government spending. Audacious to say the least, this claim would not last long.

By March, he had scaled his expectations drastically, telling reporters that DOGE’s aim was to “reduce the deficit by a trillion dollars,” half their original goal. Two weeks later, at a Cabinet meeting, he stated that DOGE expected to reduce spending by $150 billion in the first year—a 93% reduction from his original $2 trillion target in just a matter of months.

Even these dramatically reduced figures appear to have been inflated to some extent. In one case, NPR found that DOGE claimed $55 billion in savings from various cancellations, but the estimated savings ran closer to $2 billion. In another, a New York Times investigation found that the agency’s tally was “inflated by errors and guesswork.”

Putting aside the controversial and contested legal status of the cuts, the maths here was just never going to work. The total cost of the entire federal civilian workforce amounts to roughly $220 billion per year. Eliminating every single federal employee would cover just 13% of the annual deficit.

The reality is that discretionary federal spending simply is not large enough to solve the debt problem through cuts alone, especially without congressional involvement. You could eliminate the Department of Education, Transportation, Justice, Homeland Security, and Interior in their entirety and still have more than $1.4 trillion in annual deficits—and rising.

Military spending offers larger potential savings, but even here the numbers do not add up. The entire defense budget totals roughly $850 billion. Cutting it in half—an impossibly radical reduction that would fundamentally alter America’s global role—would save $425 billion, leaving more than $1.2 trillion in deficit spending untouched.

To reach those savings, America would have to retire half of its aircraft carriers, close overseas bases from Germany to Japan, slash veteran benefits, and reduce active-duty forces by hundreds of thousands. This would be nothing short of an abandonment of its status as a global superpower and would leave allies from Europe to Taiwan to fend for themselves. And despite all that, it would barely dent the deficit.

While the conservative approach of slashing and burning has not stood the test of time particularly well, progressives’ talking points fare little better. The most popular target—America’s billionaires—simply do not have enough wealth to make a meaningful dent in the federal deficit, even if the government confiscated everything they owned. The total net worth of all US billionaires combined amounts to roughly $5.2 trillion.

Confiscating 100% of their wealth—every stock option, real estate holding, art collection, and business interest—would fund current government operations for approximately 15 months. This theoretical wealth seizure would represent a one-time infusion that, while enormous in absolute terms, falls well short of addressing ongoing structural deficits. It would also be impossible—much of their wealth is tied up in stocks, and mass liquidations of these positions would begin to drag down the value for the billionaires themselves, as well as crash the stock market that millions of ordinary Americans are invested in.

The fundamental challenge facing progressive taxation is not philosophical; it is mathematical. America’s wealthy, while extraordinarily well-off by historical standards, simply do not have enough money to solve a $1.7 trillion deficit—let alone the $37 trillion debt.

The Programs No One Will Touch

This brings us to the uncomfortable truth that both parties have preferred to avoid lately: the real money in the federal budget lies in programs that are popular—and therefore a poison pill to touch. Social Security, Medicare, and Medicaid represent over 50% of total federal spending and are driving all the growth in future deficits. Social Security alone accounts for $1.4 trillion in annual spending. Medicare adds another $1 trillion on top of that.

They are also growing automatically as the Baby Boomer generation ages and healthcare costs continue to rise at a rate far higher than inflation. The demographic trend here is disastrous: for decades, these programs relied upon an ever-expanding workforce to put more money into the system than was being taken out. Now, as the enormous Baby Boomer generation ages and begins cashing in on the benefits they both paid into their entire lives and were assured of in their retirement, a shrinking workforce and a falling birth rate are together making such programs impossible to fund as designed.

Healthcare cost inflation only makes this issue worse. Even if the number of beneficiaries stopped rising, Medicare and Medicaid costs would continue growing as medical treatments became more expensive. This is a uniquely American problem—the US spends nearly twice as much per capita on healthcare as other developed nations. The country is not just facing the kind of demographic challenges many nations do with more retirees; it is facing that challenge with the world’s most expensive healthcare system automatically ratcheting up the bill.

What makes this so dangerous for America’s fiscal future is that these ever-increasing costs get locked into government spending without any control mechanism. The spending grows on autopilot, regardless of what any given Congress decides. Touching these programs has become something of a non-starter for American politicians.

Democrats have long positioned themselves as champions of the programs—which were, after all, largely established by Democrats themselves. Republicans of days gone by were more willing to discuss restructuring the programs, including cuts. These proved to be extremely unpopular: the last Republican candidate for president to make such suggestions was Mitt Romney in 2012, who was attacked as “throwing grandma off a cliff.”

Opinions of Romney’s plan aside, this political logic is understandable. Beneficiaries of these programs can be extremely influential in elections: older Americans vote far more frequently than younger ones do. Donald Trump sensed this, and since announcing his candidacy in 2015, has consistently opposed cuts to social programs like Social Security. Having dominated Republican politics ever since, the space for such a proposal has essentially been eliminated.

The result is a budget where the largest and fastest-growing line items are precisely the ones no politician dares to reform.

Hard Realities and the Path Forward

After dismissing all the popular non-solutions, it would be understandable to wonder what exactly there is to be done about all this. Rest assured, there are paths out of this: and the earlier American politicians come to embrace them, the easier it will be for the country to turn its financial direction around.

One of the largest barriers to long-term financial stability in the United States is the lack of bipartisan consensus on more or less every major issue. However, unlike in parliamentary systems where elections can result in governments with landslide majorities that can lead to violent whiplash between two extremes, the United States has suffered from the opposite. Gridlock between the two different bodies of Congress, often held by different parties, has led to spending being just about the only thing they do agree on. It is far easier to agree to spend than to agree to sacrifice.

The current American financial situation is the byproduct of this. The House of Representatives is currently held by the Republicans by a tiny majority—who themselves are embroiled in a heated debate about this very issue. If they cannot get their own party on the same page about these issues, it is not hard to guess how effective they have been at negotiating with Democrats.

There are a variety of different paths out of the current debt situation, and the point here is not to endorse any in particular. What is worth laying out, however, is the dual issue at hand: Washington is not bringing in enough money to cover its increasing spending. Whether through spending cuts—namely through entitlement reform—tax increases, or a combination of the two, the only way that America will be able to stop itself going down an intense financial crisis is by taking bipartisan action as soon as possible that can survive more than one midterm election shifting the House from one party to the other. Durability is the operative requirement: a fix that collapses with the next change in control is no fix at all.

Conclusion: A Preventable Tragedy

Winston Churchill once said that you could always count on the Americans to do the right thing—after they have exhausted all the alternative options. Unfortunately, his wisdom might still be applicable here. Congress seems extremely unlikely to adopt any of the reforms necessary to meaningfully turn the tables around. To do so, lawmakers would have to accept politically unpopular short-term actions in exchange for long-term benefits they are not even guaranteed to receive.

Who, after all, casts their vote based on what crisis did not happen?

The uncomfortable truth here is that neither party wants to be responsible for both cutting Social Security and raising middle-class taxes. Republicans would face immediate primaries for backing tax hikes; Democrats for allowing entitlement cuts. Given these political constraints, the most likely scenario is that America will wait until the pressure from irresponsible financial policy accumulates to the point where action that under normal political circumstances would seem impossible becomes mandatory. The reform will come not because politicians chose it, but because reality forced it.

To be fair to the Americans here, they are not exactly alone. This is an issue that democracies have never been particularly skillful at navigating, as the politicians advocating for policies with the more short-term gain the world over are more likely to come out on top. Ireland, Spain, Portugal, and Greece implemented comprehensive fiscal adjustments only after being forced by EU bailout conditions.

Canada’s successful 1990s adjustment occurred only after credit agencies threatened downgrades that the Wall Street Journal declared would make the country “an honorary member of the Third World.” In every case, the cure arrived only once the crisis had already begun.

The tragedy is not that this is inevitable—it is that it is entirely preventable. The 1990s were not that long ago, and the economy was not such a wildly different place. Every step along the way since, from post-9/11 spending to 2008 bailouts to COVID relief spending, seemed reasonable in isolation. But when looked at in conjunction with one another, they have created a trajectory that is going to take an enormous amount of effort to reverse.

America still has advantages that most countries lack: the world’s reserve currency, deep capital markets, and strong institutions. But those advantages are not permanent, and the longer Washington avoids this issue, the more some of its advantages are eroded. The question now is whether Congress will act now, while it still has a choice—or wait until it no longer does.

Sources

• Fitch Ratings — US Faces Several Fiscal Policy Challenges in 2025
• Economic Policy Innovation Center — Preparing for the Debt Limit: Projecting the 2025 X-Date
• NPR — DOGE Savings, Receipts, Musk and Trump
• The New York Times — DOGE Contracts and Savings
• Macrotrends — United States Debt-to-GDP Ratio
• Mercatus Center — Debt and Growth: A Decade of Studies
• USAFacts — How Much Does the US Federal Government Spend?
• MIT Sloan — Here’s How Much the 2008 Bailouts Really Cost
• US Treasury — Summary of Treasury Securities Outstanding
• Peter G. Peterson Foundation — Interest Costs on the National Debt
• Trading Economics — Japan Government Debt to GDP
• Congressional Budget Office — Publication 59946
• US Bureau of Labor Statistics — The Recession of 2007-2009
• Reuters — Greece Statistics (2011)
• Council on Foreign Relations — First Time US Spending More on Debt Interest Than Defense