The United States has a hair-on-fire problem: its debt. This reality is not disputed by pretty much any credible person or entity, including the Treasury and the Fed. U.S. government debt is massive, currently north of 120% of GDP, an amount that is close to double what many institutions consider to be sustainable debt levels.
Our deficit is running at a wartime level, around double the historic average as a percent of GDP, and interest on the debt has now surpassed spending on defense, which is not a healthy indicator for a country and its fiscal stability.
A main cause of this issue is Congress and their years of reckless overspending. Unfortunately, it lies in their hands to fix the problem they helped create.
Currently, Congress is at work on “one big, beautiful bill” to address taxes and spending. And what we have seen thus far is still too big and doesn’t address the critical issues at hand. Frankly, the new bill needs a “fat shot” (the humorous moniker President Donald Trump used for weight-loss drugs like Ozempic). And without it, we are just going to push our country nearer to a fiscal cliff.
The problem with our finances is not one of tax collection, it is a spending problem. Federal government “revenue” was nearly $5 trillion for last fiscal year. That is more than the GDP of every country on earth, except the U.S. and China. Still, that is not enough for the government, which then spends that $5 trillion plus another $2 trillion – around 6-7% of GDP – which then needs to be financed.
After decades of being irresponsible, we are dangerously close to that fiscal cliff. I worry about the prospects of a debt spiral. That is where the interest on our debt drives up the deficit (as it has). As the government needs to finance that deficit, the supply of Treasury debt increases. That then drives up Treasury yields, which increases our interest costs. That increases the deficits, which again have the same impact and that vicious cycle continues.
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And that’s with debt servicing costs, running at $1.2 trillion at the end of 2024, plus entitlements already exceeding the tax revenue collected, before considering any other spending.
Yet, while everyone knows our debt position is a problem, there doesn’t seem to be the political will to fix it.
In a recent X post, Stephen Moore, who has advised Trump on economic issues, posted, “You’ll need a microscope to see the GOP’s spending cuts! The CBO projects a staggering $89.3 trillion in federal spending over the next decade. The House plan proposes a mere $1.2 trillion reduction, leading to a total of $88.1 trillion—a tiny 1.5% cut! Meanwhile, the Senate suggests an almost laughable $4 billion reduction against $521 billion in increases. By 2035, the GOP’s ‘starvation diet’ still lands us at $10 trillion in spending—up from last year’s $7 trillion, only 40% increase instead of 50%.”
This does not bode well for our financial future.
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The Trump administration has several paths available to be able to buy us some time, patch up our fiscal foundation and solidify our future. However, none of those options make sense if Congress can’t be reined in long term.
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Consider the DOGE efforts. We know that the program has identified a great deal of waste, fraud and abuse already. While that is great in theory, we need to see it moved by Congress into concrete, long-term spending reductions.
Given that, with GOP control of Congress, spending is still not being reined in, our long-term fiscal prospects are grim.
We need a small, beautiful bill or, even better, a bunch of small, focused bills, with a real plan to reduce spending and to make sure Congress can’t continue to run up our debt, deficit and interest expense.
If we don’t give the bill and our spending a “fat shot,” our country will die from its fiscal obesity.
