As the national debt is a few months from reaching $39 trillion, and perhaps $40 trillion by the end of this year, it is puzzling how unperturbed the political class is. Or perhaps not. Writer and political agitator Upton Sinclair (1878-1968) said: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”
Or pretending not to. A bipartisan congressional consensus, more alarming than partisan rancor, is: There are no long-term fiscal gains without intense short-term political pains. So, because today’s congressional careers do not yet seem likely to coincide with coming dire consequences, let them come.
In 2016, a budget expert was allotted 20 minutes to brief Donald Trump on those possible consequences. After five minutes, Trump said, “Yeah, but I’ll be gone.” He was perfectly in sync with the political mainstream he professes to supplant.
Nevertheless, the undiscourageable Committee for a Responsible Federal Budget persists. Although few others think mere information can galvanize congressional action to forestall a darkening fiscal future, the committee recently described six possible crisis scenarios. Five are dramatic. The sixth is less so, but most alarming, and most likely.
Upwardly spiraling debt could provoke a financial crisis. Investors anxious about the U.S. fiscal outlook would demand sharply higher interest rates to entice them to purchase Treasurys. This would ignite a self-reinforcing debt spiral: Higher interest rates would slow economic growth, reducing government revenue while increasing government spending on debt service. Higher interest rates on new debt would reduce the value of the much larger amount of existing debt. This would weaken the balance sheets of banks and other financial institutions. Because these would be deemed “too big to fail,” bailouts and spending to stimulate the sputtering economy would exacerbate the financial crisis.
An Everest of debt is an incentive for an inflation crisis to reduce the value of existing debt by paying lenders with debased dollars. But inflation would become baked into the expectations of investors, who would demand higher interest rates. Then R>G would bite: When interest rates paid on debt exceed the rate of economic growth, a crisis intensifies as rising interest rates depress economic growth.
An austerity crisis would occur with a large and abrupt combination of tax increases and spending reductions. Unemployment would increase, and the Federal Reserve would have little ability to combat economic contraction by reducing interest rates. Austerity is, however, rare in nations accustomed to assuming its opposite — an unending expectation, indeed entitlement, to opulence. The Economist says that “only once in the era of universal suffrage has a G7 economy” — a leading developed nation — “achieved a big fall in debt primarily by tightening its belt” (Canada in the 1990s).
A currency crisis would result from a depreciating dollar incentivizing foreign governments and private investors to diversify away from U.S. debt. A default crisis, although unlikely, would have the merit of bluntness: continuing to repay principal but not interest, or “restructuring,” which is government-speak for not repaying some debt.
The most probable, and most ominous, outcome would be a gradual crisis. In 2021, debt service consumed less than 10 percent of federal revenue. In 2025: 18 percent. By being gradual, a protracted crisis would mean a demoralized nation slowly accommodating perpetual economic sluggishness, waning investments in research and development, social stagnation, diminished contribution from the entrepreneurial energies of talented immigrants, and waning U.S. geopolitical influence.
A gradual crisis would be anesthetizing, rather than an action-forcing, cymbal-crash event that could stimulate recuperative reforms of U.S. political culture. Instead, this culture would become more toxic. Political power would be fought for, and wielded, with the desperate ruthlessness of a zero-sum competition in which one faction’s gains must equal other factions’ losses.
So, government would simultaneously become more powerful, more divisive and less legitimate. The currency is how everyone meets the government every day through the unstated — because presumably obvious — government promise that the currency it issues is trustworthy.
Nothing unsettles a middle-class nation more rapidly than inflation, a component of all of these crises. By it, people are reminded daily that the currency is failing as a store of value. This unnerves the public as much as crime, today’s deportation mayhem and other disorders. Inflation is disorder. Its quiet ubiquity is especially sinister, making everyone feel powerless.
“Dystopian” is the antonym of “utopian.” “Utopia” was derived from Greek roots to denote something imaginary — “nowhere.” The dystopian consequences of U.S. debt could someday be everywhere.
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