Think of the U.S. economy as a person who looks healthy, but on the inside is carrying a serious disease that could kill them. That disease is the massive federal debt.
Treasury Secretary Scott Bessent has said, “Our fiscal situation is a 350-pound, two-pack-a-day smoker on the ICU table.”
The federal debt is at $37 trillion and climbing. That’s over $300,000 per taxpayer. The U.S. now spends more on interest than on national defense, almost one trillion dollars per year. In 10 years, interest payments alone could absorb 30 percent of government revenues.
Federal Reserve Chairman Jerome Powell says, “The federal debt is on an unsustainable path. And no one really knows how much further we can go.”
Analysis by the Penn Wharton Budget Model estimates the U.S. has less than 20 years to tackle the debt problem or face default.
Yet for decades, Washington’s approach has been to kick the can down the road and put off cutting spending. And because the economy keeps buzzing along, it can seem as if the huge government debt isn’t a big deal. However, some warn that a reckoning is coming and it could be bad.
Chris Edwards, an economist at the Cato Institute, warns, “It’s an extremely serious and dangerous situation we’re in right now. The federal government has already borrowed $30 trillion. And if the government does nothing over the next few years, the accountants in Washington think that the $30 trillion will rise to $50 trillion.”
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While the White House claims the recently passed ‘One Big Beautiful Bill‘ will reduce the debt, the Tax Foundation believes Trump’s spending package will add another $3 trillion to the debt over the next decade.
Daniel Bunn, president and CEO at the Tax Foundation, says, “There’s still a significant hit to the deficit in long-term debt. And that’s something that I think lawmakers could have made better choices to have this be more fiscally sustainable.”
The impact of the huge federal debt is minimized because the world keeps financing it by buying U.S. Treasury notes. And that’s why some, like ‘Big Short’ investor Steven Eisman told CNBC the federal debt is a non-issue.
“If there was a real alternative to treasuries, then all this stuff about the deficit is something I would pay attention to. But as long as there is no alternative, there’s nothing to talk about,” Eisman said.
The largest holders of U.S treasuries are Japan and China. Should China, in a future conflict with the U.S., dump its treasuries, the dollar would be worth less and inflation would spike. Even without such an event, the federal debt is making Americans poorer, and could cost them as much as $14,000 a year in lost income by 2054, according to the Congressional Budget Office.
Sen. Ron Johnson (R-WI) warns, “We are mortgaging our children’s future. It’s wrong, it’s immoral and it has to stop.”
During recent budget negotiations, Rep. Chip Roy (R-TX) said, “We are writing checks we cannot cash, and our children are going to pay the price.”
While almost everyone in Washington agrees that the federal debt must be cut, finding the political will to do it is another matter.
