Rising U.S. Debt: What Will Be The End Game?

America’s economy is by far the world’s biggest. With a projected 2025 GDP of over $30 trillion, we have been better at bringing prosperity to large groups of people than any nation in history. We’re also the most indebted. In absolute terms, the U.S. owes more money than any other nation, and was recently downgraded by Moody’s. While this has led to doomsday scenarios through the years, the U.S. has not collapsed and isn’t likely to. Rather, we are seeing a slow decay in economic dynamism and living standards, as manifested in a weakening currency, higher government costs and worse services. How much the situation can improve depends on how soon – or if – the government stops pretending America is immune to fundamental economic laws.

From 2000 to 2024 the national debt climbed from $10 trillion to over $36 trillion. In the last Trump administration alone it grew 39%, erasing any hope that Republicans would be a more responsible party than pro-government Democrats. The growth comes from decades of increased entitlements and higher government spending across the board. Tax cuts combined with high spending indicates politicians don’t see a need for balanced budgets, helping explain why annual deficits now far exceed $1 trillion.

America’s continued innovation and strong job market obscure the problem. But the consequences are getting harder to ignore.

The dollar has lost over 20% of its value since the extreme money printing from COVID. While inflation has since cooled, structural price increases will never go away, with food now up 23% and transportation up 34% since that year. It seems as if politicians and central bankers ignore the historical record of inflation. The Nixon Administration’s loose monetary policy led to over a decade of high prices and economic stagnation; unemployment hit 9% in 1975. Again, not catastrophic, but not a great situation.

Money printing isn’t the only consequence of out-of-control debt. Tax hikes are guaranteed. By one estimate, interest costs will hit $1 trillion a year by 2033. Progressives think taxing the rich is the easy fix, but the top 10% of earners already pay 3/4ths of federal tax revenue, with many of them giving over half their income to federal, state and local governments. The more that politicians try milking that cow, the more capital flight we’re likely see, leaving more of the burden to the other 90%.

These across-the-board higher taxes will be met with declining services, as interest payments (which already account for 13% of the budget), will strip money from education, infrastructure, defense – perhaps even Social Security.

The stock market – in which a majority of Americans invest and often have their retirements pinned on – will suffer too. While the fiscal stimulus of debt spending can be positive short-term, it has negative long-term effects on equities. The most technical is that to make Treasuries attractive, the government may need to offer higher yields, which will increase borrowing costs in the private sector and cool stock investing. But the more generalized reason is that investors will simply lose confidence in American companies if they’re governed by an entity that seems dysfunctional and can’t control its spending.

All this spells a less competitive, less prosperous future for Americans. Even digging beneath the negative optics of a debt-prone nation will be the very real fact that resources are shifted away from the populace, and into a bureaucracy that must pay down its past profligacy.

To see the most extreme version of where rampant debt spending goes, look to the Third World. Argentina (which is now a “developing country”, decades after standing as one of the world’s richest ones) has had hyperinflation for years. In 1998, just before Hugo Chávez took power, Venezuela’s debt-to-GDP was a manageable 30%. But years of deficit spending, economic nationalization, and subsidies pushed it to 85% by his death in 2013, and over 300% in 2020 under Nicolás Maduro, today sitting at over 164%. The nation’s currency literally became worthless, grocery shelves emptied, and millions fled the country.

While such a dramatic collapse is unlikely for America, a slower-rolling decline is seen in other advanced countries. Japan’s debt to GDP ratio is 250% and the country has endured three decades of slow growth amid an aging population. Greece mirrors other legacy European nations, in that its 168% debt to GDP rate plays part and parcel to its slow economy and high youth unemployment.

It’s not too late for us to avoid a crisis. America can reduce debt either by cutting spending (which is unlikely). Or it could raise revenue, which can be done in several ways. One commonly-understood path is by having a stronger economy, but that too could be unlikely for the reasons stated above. A less-discussed path is to sell government assets, including the hundreds of millions of acres of federal land. The Trump administration has discussed such measures, though so far it’s been little more than talk. But the longer the country waits to solve the problem, the worse the effects, and the more painful the fixes will be.

This piece originally was published by the Independent Institute.