The United States’ national debt, currently standing at $38 trillion and exceeding 120% of annual economic output, demands action , experts warn. The nonpartisan Peter G. Peterson Foundation gathered a series of distinguished national economists and historians from outside the foundation in a collection of essays published Thursday. They analyzed risks to U.S. Economic strength, dollar dominance, and global leadership. The experts also explored the national debt’s impact on interest, inflation and financial markets, with some characterizing this moment in history as a crisis. Collectively, they argue that the nation is operating under a dangerous fiscal gamble.
Assessing the mounting liabilities, Council on Foreign Relations President Emeritus Richard Haass and NYU professor Carolyn Kissane delivered a stark judgment: “In simpler terms, we are guilty of spending our rainy-day fund in sunny weather.” Meaning, the government has little “dry powder” left to fund a major military effort or stimulate the economy during a crisis.
The nation's debt situation has hit a crucial point. Servicing the U.S. Debt now costs roughly $1 trillion each year, exceeding the nation's defense expenditures. Economist Heather Long noted that the current decade is “fast becoming the era of big permanent deficits”, with yearly budget deficits expected to stay elevated (near 6% of GDP) despite low unemployment, a significant deviation from past U.S. Trends.
Experts caution that historical remedies, like the debt reduction following World War II or the budget surpluses of the 1990s, are no longer viable. Economist Barry Eichengreen noted that the significant post-World War II debt decrease was facilitated by a very advantageous spread between interest rates and growth rates (characterized by low real interest rates and robust GDP expansion). Similarly, the 1990s fiscal improvement was driven by the “peace dividend,”, which allowed for substantial reductions in military expenditures. “None of these facilitating conditions is present today.”
The National Security and Dollar Threat
Eichengreen, on his end, pointed out that present security dangers from Russia, Iran, and the South China Sea prompt greater defense expenditures, not reductions. Political division further complicates matters, identified as the strongest factor hindering effective fiscal stabilization. Since significant entitlement programs are politically safeguarded, this fiscal stalemate makes increasing revenue the most practical option, considering the U.S. Has a low tax-revenue economy relative to its counterparts.
The debt is framed not just as a financial strain but as a direct threat to security. Haass and Kissane emphasized that money spent on borrowing is “money not available for more productive purposes, from discretionary domestic spending to defense,” a classic crowding-out phenomenon. Other underfunded programs—including cybersecurity and public health—hollow out internal capacities that protect the homeland.
The crisis was characterized by Haass and Kissane as one that is moving in “slow motion,” which is the most difficult type for democratic governments to address effectively. Avoiding a sudden “cliff scenario” where bond markets crash, experts argue, is not avoiding the crisis itself, they added: “The day will come when the boiling water finally kills the frog.”
The U.S. Dollar's foundational institutional integrity is also imperiled. Historian Harold James expressed his view that the current circumstances represent a “the middle of a very dangerous experiment with the U.S. Dollar, and with the international monetary system, whose fundamental driver is a fiscal gamble.”. This decline in the rule of law, accountability, and transparency is “specter of political risk in U.S. Sovereign bond markets,”, making it more challenging to sustain the dollar's dominant position. Alarmingly, the possibility of political meddling in bodies like the Federal Reserve or the manipulation of national data—a lesson learned from Argentina's experience—further diminishes trust.
When credibility erodes, bond markets gain influence, and their dissatisfaction can trigger abrupt, severe economic repercussions for Ordinary Americans via escalating interest rates on mortgages and other loans. Haass and Kissane employed a different analogy, likening the circumstances to “forgoing fire or automobile insurance just because the odds are you will not suffer from a fire at home or an accident on the road.”