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Us National Debt Crisis Looms As Deficits Soar, Raising Solvency Concerns
Washington D.C. – the United States faces a looming national debt crisis as it’s debt-to-GDP ratio spirals,deficits balloon,and customary Treasury buyers retreat.New data indicates the current debt-to-GDP ratio stands at a staggering 123%, projected to reach 140% by 2029, raising alarms among economists and policymakers alike.
Annual deficits currently consume 6.4% of the nation’s GDP. The Congressional Budget Office (CBO) forecasts these deficits will surge to 9% of GDP, or $2.7 trillion,by 2035. Interest payments alone account for roughly 3% of the country’s GDP, exacerbating the financial strain.
Alarming Deficit Figures
This year, the deficit will add an amount equivalent to 40% of all federal revenue to the national debt. Fiscal year 2025 already shows a deficit of $1.36 trillion with four months remaining, a 14% increase from last year. Debt financing is projected to exceed $1.2 trillion for the fiscal year, totaling $776 billion over the initial eight months.
The nation’s debt now equals 740% of federal revenue. By 2035, the national debt is anticipated to reach $67 trillion. It took the United States two and a half centuries to accumulate the frist $37 trillion of debt, but the country is now on pace to add another $30 trillion in the coming decade.
Did You Know? the Committee for a Responsible federal Budget reported in March 2024 that the US has already surpassed its highest debt level as World War II. Learn more here.
A Shifting Landscape Of Treasury Buyers
Several factors contribute to the evolving landscape of Treasury buyers.The Federal Reserve is no longer a reliable buyer, actively shrinking its balance sheet by selling off $2.3 trillion in assets, predominantly Treasury securities.
Foreign central banks are also stepping back from purchasing US Treasuries. heightened concerns about the safety of parking reserves in US dollars,sparked by recent sanctions and asset confiscations,are driving this shift. Ongoing tariff disputes have further disrupted international capital flows, reducing trade surpluses and, consequently, the dollars available for investment in US Treasuries.
Mounting solvency concerns, fueled by persistent $2 trillion annual deficits, are also raising questions about the nation’s fiscal stability during times of peace and economic expansion. What might occur during a recession or war?
The Fed’s Limited capacity To Intervene
While some suggest the Federal Reserve can always intervene to replace free-market demand for Treasuries, inflation poses a meaningful obstacle. The current macroeconomic landscape differs significantly from 2007.
During and after the Great Recession (2007-2014), the Fed’s $4.5 trillion in money printing primarily led to asset price inflation as bond yields fell and risk assets increased. The credit largely remained on Wall Street, with consumer price inflation remaining
