On May 16, 2025, the United States faced a significant financial turn when Moody’s downgraded the nation’s credit rating, marking the last major rating agency to strip the U.S. of its Aaa rating. This downgrade transcends a mere technical financial event; it is indicative of a growing consensus that the rising debt burden has shifted from being an abstract consideration to a strategic constraint impacting U.S. power and leadership on the global stage. As the costs of borrowing rise and fiscal space diminishes, the intersection of debt and national security is becoming increasingly apparent.
The urgency of the situation is underscored by projections indicating that, without reform, U.S. debt could reach 156 percent of GDP by 2055. This trajectory poses risks of eroding American power amid intensifying global competition, echoing Adam Ferguson’s centuries-old warning about the dangers of excessive borrowing potentially mortgaging a nation’s liberty.
Historically, concerns regarding sovereign debt are not novel. Ferguson, a thinker from the past, articulated many dangers tied to reliance on borrowing within national strengths—a perspective that remains relevant today as the U.S. grapples with its fiscal challenges. He warned against states that mortgage their credit, emphasizing how such actions could jeopardize their independence and civic virtue. Ferguson’s insights set the stage for understanding how debt correlates with national power, a theme echoed through history.
Into the twentieth century, other economic theorists also weighed in on debt dynamics. Notably, John Maynard Keynes reframed the discourse around debt, claiming that strategic deficit spending might be constructive during economic downturns. However, even Keynes was adamant that such debt should remain cyclical and not structural, which sharply contrasts with the contemporary U.S. scenario. In the past decade, the U.S. economy has enjoyed growth, yet consistently operated under a budget deficit, raising questions about fiscal responsibility.
French economist Jacques Rueff provided warnings regarding this fiscal discipline, highlighting the implications of the Bretton Woods system. He predicted that the United States would exploit the dollar’s “exorbitant privilege,” which would allow it to run deficits without the usual constraints imposed by balancing payments. Rueff foresaw that such an arrangement would eventually undermine global monetary stability—a caution that seems prescient given the present fiscal landscape.
Ray Dalio, a modern economist, now voices concerns similar to those of previous thinkers. Dalio claims that the U.S. is nearing the end of a long-term debt cycle initiated by the privileged position of the dollar. As this current cycle progresses, policymakers are confronted with unique challenges that could severely impact America’s global leadership, especially in competition with countries like China.
The evolving debt dynamics of the United States palpably affect national power, and understanding the nuances behind this debt is crucial. Debt itself is not inherently detrimental to economic or national security; prudent and strategic borrowing can foster resilience and fortitude. The risk emerges not from the existence of debt, but from its structural complexities, growth rate, and overreliance on borrowing—all areas where current U.S. policies draw significant concern.
As of May 19, 2025, the national debt of the United States stands at $36.22 trillion, or 124 percent of GDP—the highest level since World War II. This burden is driven by various structural factors, including:
1. Demographic Pressures: Falling fertility rates signal an aging population, resulting in increased Medicare and Social Security costs, currently accounting for over 35 percent of federal spending.
2. Rising Interest Costs: Interest payments on the debt are predicted to exceed $1.8 trillion annually by 2035, outpacing current federal spending on defense, education, and transportation.
3. Persistent Primary Deficits: The U.S. has been running deficits even during times of economic growth, exemplifying a significant fiscal imbalance and contributing to ongoing trade deficits.
Despite an awareness of these trends, political gridlock has hindered meaningful fiscal reform. The consequences of inaction are compounded over time, with the potential to reshape perceptions of U.S. credibility and resilience on both domestic and global fronts.
Excessive debt poses numerous risks, impacting policy options and elevating national security vulnerabilities in various ways. For example, as interest payments consume a larger percentage of federal budget allocations, discretionary spending—including defense—faces mounting pressure. By 2024, the U.S. spent approximately 3 percent of its GDP solely on interest payments, and projections indicate this will surpass defense spending in 2025.
Additionally, high levels of debt result in diminished fiscal flexibility, limiting a nation’s ability to rapidly ramp up spending to address emerging threats or economic crises. While the U.S. benefits from borrowing in its own currency, the country remains susceptible to potential shocks, such as interest rate hikes, complicating the intersection of debt service, defense, and other essential priorities.
The current erosion of fiscal space is a tangible reality and can already be observed in the shifting dynamics of global capital flows. Notably, the reliance on foreign sovereign wealth funds (SWFs) exposes a new strategic challenge tied to debt dependency. Over the past 25 years, SWFs have surged, currently managing over $12 trillion globally, with numerous countries utilizing these funds for both economic and strategic purposes.
In light of the increasing influence of SWFs, there have been discussions around establishing similar vehicles in the United States. However, creating a U.S. SWF would necessitate capital that could instead be used to reduce the national debt, placing the desirability of such a fund in direct conflict with the pressing need for fiscal responsibility. Consequently, dependence on foreign SWFs, especially from the Gulf region, has become pronounced, presenting an added layer of complexity to U.S. financial stability.
Despite the intertwined nature of U.S. assets and foreign capital, the implications of this dependency can be concerning. Recent actions illustrate how financial considerations may shape policy decisions that erode strategic independence. Secretary of the Treasury Scott Bessent’s remark on the downgrade of U.S. debt, suggesting that foreign stakeholders like Qatar and Saudi Arabia dismiss such changes, captures this sentiment. It points to the substantial influence foreign capital wields in sustaining U.S. debt-like strategies while simultaneously complicating domestic decision-making dynamics.
Furthermore, recent policy decisions, such as permitting advanced AI chip sales to the UAE—linked to sizeable Emirati investments in U.S. AI sectors—demonstrate a strategic entanglement that reflects Ferguson’s caution about debt and dependency. The delicate balance of addressing national interests while navigating foreign investments illustrates the intersection of fiscal actions and broader geopolitical considerations.
The pathway to achieving fiscal sustainability appears increasingly constrained. According to the Congressional Budget Office, U.S. public-held debt could reach 156 percent of GDP by 2055, with interest payments projected to consume nearly 7 percent of GDP by mid-century, three times the historical average. With critical reforms needed in entitlement programs, tax policy, and discretionary spending caps, the urgency of timely action could not be clearer.
Procrastinating on these reforms carries the risk of upheaval, forcing disruptive changes that may be politically unpalatable. Ferguson and Rueff foresaw the dangers of entrenched debt creating a political economy resistant to change, leaving nations vulnerable to market forces enforcing fiscal discipline.
The good news remains that timely and comprehensive reforms can make a significant impact on U.S. fiscal health. Gradually raising eligibility ages for entitlements, implementing income-related premiums, and expanding authority for federal negotiation of prescription drug prices represent effective measures to control nondiscretionary spending.
On the revenue side, raising the taxable earnings cap for Social Security, broadening tax bases, introducing a minimum effective corporate tax rate, and reforming international tax provisions can enhance revenue streams and reduce the national deficit, eventually allowing for strategic investments.
Ultimately, the U.S. faces critical choices regarding fiscal policy, global leadership, and economic stability. The most alarming threat may not be economic but psychological: the false notion that the dollar’s dominance provides immunity from the consequences of fiscal irresponsibility. As debt approaches 160 percent of GDP and interest payments increasingly consume budget resources, vital investments in defense and domestic priorities face risk.
The potential for the U.S. to lose its credit rating and global influence is real, a scenario echoing Ferguson’s warnings. Although the country retains unparalleled strengths, without decisive action to reform fiscal policies, these strengths will inevitably erode. History shows that great powers rarely fall to external threats alone; they often collapse under the weight of their unsustainable choices.
image source from：https://www.csis.org/analysis/moodys-downgrade-signals-deeper-risk-us-debt-undermining-global-leadership
