For decades, fiscal hawks have sounded alarms about the growing U.S. national debt.
However, many economists believe the current situation is unlike any seen before.
They argue that the sheer size of the debt now presents a critical risk, especially as President Donald Trump pushes forward with significant tax cuts and spending bills that could exacerbate the issue.
Kent Smetters, a professor of economics and public policy at the University of Pennsylvania Wharton, warns of dire consequences, stating, “It’s like the house is burning down and we’re throwing in some accelerant instead of some fire extinguisher.”
He elaborates, “Even without this bill, our fiscal house is burning … we’re not too big to fail.”
Smetters describes the U.S. as being on an “exploding debt path,” suggesting that the government has roughly 20 years to enact meaningful reforms before facing severe repercussions.
“Bond markets can be really, really disciplinary,” he cautioned.
At the heart of the ongoing debate is President Trump’s sweeping policy measure, projected by the nonpartisan Congressional Budget Office (CBO) to add an astonishing $3.4 trillion to the federal deficit over the next decade.
The White House has pushed back against the CBO’s forecast, with President Trump asserting via social media that increased economic growth and tariff revenues will counterbalance the bill’s costs.
He declared, “Our country is going to explode with massive growth … This bill sets us on course for enormous prosperity in the new and wonderful Golden Age of America.”
Despite these claims, many economists challenge this optimistic outlook.
They describe Trump’s bill as one of the most significant pieces of legislation in generations, not only in terms of its immediate costs but also due to its long-term impacts on tax revenue.
Even in the absence of this bill, the federal debt has reached historical highs, now roughly equivalent to the size of the entire U.S. economy.
Current estimates suggest that about one in every four dollars paid in personal income taxes is allocated toward servicing the national debt.
Economists caution that rising federal deficits will trigger increased interest rates, leading to higher costs for mortgages and car loans.
Douglas Elmendorf, a professor at Harvard Kennedy School and former economist at the White House Council of Economic Advisers, emphasizes that this will hinder business investments that drive worker productivity.
Moreover, a heavier debt burden reduces the government’s fiscal space to respond to future crises, risking severe economic repercussions.
Elmendorf likens the situation to a family maxing out credit cards and facing a roofing emergency, stating, “You want to have a little room to maneuver in case bad things happen, and we are running out of that room.”
The U.S. managed to weather the 2008 financial crisis and the COVID-19 pandemic through substantial spending, but this accumulation of debt leaves the government with fewer options for future emergencies.
Despite the U.S. historically being viewed as the world’s gold standard for creditworthiness, concerns are mounting that this assumption could change.
The bond markets have shown signs of unease, and there are fears that investor confidence in the strength of the U.S. economy could wane.
Such a shift could create a negative feedback loop, as rising debt leads to higher interest rates, which in turn increases the debt, compounding the problem further.
Elmendorf warns, “This bill will make interest rates higher and make the risks of falling into a doom loop higher than it would be otherwise.”
Yet, the timeline for when this doom loop might occur remains uncertain.
If such a scenario unfolds, the U.S. could face harsh austerity measures.
Elmendorf cautions that the consequences could involve significant cuts to federal benefit programs like Social Security and Medicaid, along with steep tax increases.
These drastic actions would likely lead to a decline in the standard of living for many Americans.
Thus, economists stress the urgency for implementing moderate measures before the situation spirals out of control.
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