The Unavoidable Consequences of Unchecked US National Debt

The United States national debt, currently standing at trillions, poses a serious threat to the economy and its stability. This article will explore the potential end game scenarios and the consequences of continued unchecked national debt. We will also discuss the economic policies that contribute to this issue and provide projections that highlight the staggering repercussions of a debt crisis.

The Current State of US National Debt

Currently, the US national debt stands at over 22 trillion dollars. This figure alone is staggering, but it is the trajectory of this debt that is truly concerning. The debt is not just static; it is compounding and growing at an alarming rate. The Federal Reserve, in its efforts to combat inflation, has hiked interest rates, setting a structure of elevated interest rates. As a result, the cost of carrying this debt has significantly increased. In fact, the yield on 10-year Treasury bonds has already surpassed 5%, indicating that interest rates are not expected to decrease anytime soon.

The Fiscal Deficit and Rising Interest Costs

The US government is grappling with a growing fiscal deficit, as its expenditure continues to outpace revenue. In the fiscal year 2023, the revenue generated by the federal government was less than 6 trillion dollars. To meet these rising expenditure demands, the government is issuing more Treasury bonds to refinance maturing bonds and fund these deficits. This rising trend in the coupon rates on Treasury Bonds is compounding the interest costs for the government at an accelerated rate. The situation is projected to get worse if debt levels continue to rise.

If the national debt were to reach 34 trillion dollars and the interest rate increased to 5%, the government would incur a $1.7 trillion interest cost. At 36 trillion, the interest cost at 5% would be $1.8 trillion, and at 40 trillion, the cost at 5% would be a staggering $2 trillion.

These projections highlight the serious consequences of an unchecked debt growth. The US government's mandatory expenditures, mandated by law and including defense spending of $1 trillion, already consume a significant portion of the available revenue. With these essential expenditures, there may be no leftover funds to cover the interest cost, let alone funds for other crucial government functions like social programs and homeland security.

Chronic Issues and Economic Impacts

Biden's ambitious spending plans add another layer to this already complex problem. These plans could exacerbate the fiscal deficit, pushing interest costs even higher and leaving no room for other economic priorities. If people begin to lose confidence in the government's ability to fund its operations, it could lead to a full economic crisis. As foreign investors become more skeptical, they may stop purchasing Treasury bonds, further increasing the pressure on the government to finance its operations.

The Hypothetical Scenario

A hypothetical but real scenario suggests that if the national debt were to reach 100 trillion dollars, all money raised through taxes would go towards paying the interest on the debt. Essentially, there would be no money left for running the government or funding the defense department. This scenario is not farfetched, given the current trajectory of debt and the rising interest costs.

Conclusion

The US national debt is already at the point of no return and is set to rise further, posing significant risks to the economy and its stability. Ignorance or refusal to acknowledge the reality of the debt burden will only exacerbate the problem. Policy decisions and fiscal management must address this issue before it is too late. The government needs to find sustainable solutions to fund its operations without jeopardizing the long-term prosperity of the nation.