РУССКИЙ
10:04 30.08.2025 •
Pic.: ‘Foreign Affairs’
A once-in-a-century U.S. debt crisis no longer seems far-fetched, notes at ‘Foreign Affairs’ Kenneth S. Rogoff, a Professor of Economics at Harvard University and a Senior Fellow at the Council on Foreign Relations, who was Chief Economist at the International Monetary Fund from 2001 to 2003.
For much of the past quarter century, the rest of the world has looked in wonder at the United States’ ability to borrow its way out of trouble. Again and again, under both Democratic and Republican administrations, the government has used debt more vigorously than almost any other country to fight wars, global recessions, pandemics, and financial crises. Even as U.S. public debt rapidly climbed from one plateau to the next — net debt is now nearing 100 percent of national income — creditors at home and abroad showed no signs of debt fatigue.
For years after the 2008-9 global financial crisis, interest rates on Treasury debt were ultralow, and a great many economists came to believe that they would remain so into the distant future. Thus, running government deficits — fresh borrowing — seemed a veritable free lunch. Even though debt-to-income levels jumped radically after each crisis, there was no apparent need to save up for the next one.
Given the dollar’s reputation as the world’s premier safe and liquid asset, global bond market investors would always be happy to digest another huge pile of dollar debt, especially in a crisis situation in which uncertainty was high and safe assets were in short supply.
The past few years have cast serious doubt on those assumptions. For starters, bond markets have become far less submissive, and long-term interest rates have risen sharply on ten- and 30-year U.S. Treasury bonds. For a big debtor like the United States — the gross U.S. debt is now nearly $37 trillion, roughly as large as that of all the other major advanced economies combined — these higher rates can really hurt. When the average rate paid rises by one percent, that translates to $370 billion more in annual interest payments the government must make.
In fiscal year 2024, the United States spent $850 billion on defense — more than any other country — but it spent an even larger sum, $880 billion, on interest payments. As of May 2025, all the major credit-rating agencies had downgraded U.S. debt, and there is a growing perception among banks and foreign governments that hold trillions of dollars in U.S. debt that the country’s fiscal policy may be going off the rails. The increasing unlikelihood that the ultralow borrowing rates of the 2010s will come back any time soon has made the situation all the more dangerous.
Their Money, Our Gain
It is crucial to understand that the Trump administration’s economic policies are an accelerant, rather than the fundamental cause, of the United States’ debt problem. The story really begins with President Ronald Reagan in the 1980s, an era of deficit spending in which the U.S. debt-to-GDP ratio was about a third of what it is today. As Vice President Dick Cheney said during the first George W. Bush administration, “Reagan proved deficits don’t matter.”
It is an assumption that both parties appear to have taken to heart in the twenty-first century, despite far more worrying debt burdens. In fiscal year 2024, for example, the Biden administration ran a budget deficit of $1.8 trillion, or 6.4 percent of GDP. Except for the global financial crisis and the first year of the pandemic, that was a peacetime record, slightly exceeding the 6.1 percent of the previous year.
During his 2024 presidential campaign, Trump pilloried Biden for his administration’s massive deficit spending. Yet in his second term in office, Trump has embraced similarly large deficits — six to seven percent of GDP for the rest of the decade, according to independent forecasts produced by the Congressional Budget Office and the Committee for a Responsible Federal Budget. The latter has projected that, by 2054, the U.S. debt-to-GDP ratio will reach 172 percent — or an even higher 190 percent if the bill’s provisions become permanent.
Magic Mountain
Washington’s failure to deal with its runaway debt problem is in part the result of misguided (or at least oversold) economic theories that took hold over the last two decades. Throughout most of modern history, it was thought that prudent government debt management involved bringing down the ratio of debt to GDP during quiescent periods of growth in order to store fiscal ammunition for the next crisis.
In the 1800s, the United Kingdom used debt to fight one war after another, taking advantage of the time in between to repair its finances. Likewise, although the U.S. debt-to-GDP ratio was very high during World War II, it quickly declined in the years that followed; since the United States had just fought two world wars, policymakers feared there might be yet another. To pay for the Korean War, the Eisenhower administration famously raised taxes instead of relying mainly on debt. But in the years following the global financial crisis, the persistent very low interest rates that took hold caused a number of leading economists to question this orthodoxy.
How and when a debt crisis in the United States could unfold is now the $37 trillion question. In one scenario, the trigger will be a collapse of confidence by investors in U.S. Treasuries — a “crack in the bond market,” as Jamie Dimon, the CEO of JPMorgan Chase, warned in May — meaning a sudden spike in interest rates that revealed a larger problem.
Rising interest rates do not in themselves constitute a crisis. But if driven by debt concerns, they will push down stock and housing prices, make business investment more challenging, and raise the cost of servicing government debt. If this process unfolded slowly, the government would have time to react. If it doesn’t do so forcefully — typically, by closing the current budget deficit and credibly committing to fiscal rectitude — markets would smell blood, interest rates would go up even more, and the government would need to make even bigger adjustments to steady the ship.
End of an Empire
For too long, the status quo approach in Washington has been to ignore the massive debt problem and hope that a return to miraculous levels of growth and low interest rates will take care of it. But the United States is approaching the point at which the national debt could undermine not only the country’s economic stability but also the things that have sustained its global power for so many decades, including the military spending that it has leveraged in many ways to maintain the dollar’s formidable influence over the global financial system since World War II.
Whether in the case of Spain in the sixteenth century, the Netherlands in the seventeenth century, or the United Kingdom in the nineteenth century, no country in modern history has been able to sustain a dominant currency without also being a superpower.
The United States may avoid a debt crisis, and Trumpian and progressive economists who count on growth dividends ultimately outweighing the interest costs of higher debt may turn out to be right. But the debt policy that both the Republican and the Democratic Parties have engaged in over the first quarter of the twenty-first century amounts to a huge wager on long odds, especially if the country wants to remain a dominant power for the rest of this century and beyond.
Given the current trajectory of deficits, it has become much more difficult to sustain the belief that no matter how high U.S. debt gets, it will have no effect on the country’s capacity to fight financial crises, pandemics, climate events, and wars. And it will certainly be a drag on the country’s growth.
It is impossible to predict how and when a U.S. debt problem may erupt and what the consequences will be: unpalatable austerity, high inflation, financial repression, partial default, or a mix of these.
There are strong reasons to assume that inflation will have a pronounced part, as it did during the 1970s. Regardless, a debt crisis will be destabilizing for the United States, the global economy, and the dollar’s reserve status. Left unchecked, it could erode the country’s position in the world.
A once-in-a-century U.S. debt crisis no longer seems far-fetched.
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