Washington, D.C. — As the recently passed budget bill receives accolades from former President Donald Trump, renewed concerns are surfacing about the sustainability of the United States’ mounting debt, which has already ballooned to an unprecedented $37 trillion. This new budget plan, touted as the “Big Beautiful Budget Bill,” is projected to increase national debt by at least $3 trillion, prompting skepticism from economists and financial experts.
Critics, including notable figures like Elon Musk, are voicing their apprehensions about the financial implications of such expansive borrowing. As the U.S. government borrows more to cover annual spending discrepancies, questions arise about the limits of international investors’ willingness to fund American debt. This skepticism is reflected in the decreasing value of the dollar and the rising interest rates required by investors to lend money to the U.S.
Since the start of the year, the dollar has depreciated by 10% against the British pound and 15% against the euro. Although U.S. borrowing costs have remained relatively stable, the widening gap between short-term and long-term interest rates indicates deepening apprehensions regarding the country’s financial trajectory. Typically, lower interest rates would strengthen the dollar, yet the opposite is being observed, raising alarms over the long-term viability of U.S. debt.
Ray Dalio, founder of one of the world’s largest hedge funds, warns that the U.S. is at a crucial juncture concerning its fiscal health. He predicts that if current trends continue, annual federal loan and interest payments could escalate to $10 trillion. Dalio emphasizes the urgent need for the government to address the debt situation, positing that failure to act now could lead to unmanageable debt levels fraught with economic consequences.
Addressing the situation could involve severe government spending cuts or far-reaching tax increases. Dalio advocates for reducing the budget deficit from its current level of 6% to 3% in the near term to mitigate potential financial crises—however, the new budget’s emphasis on tax cuts rather than strict fiscal discipline suggests a divergence from this cautious approach.
Three possible scenarios exist for managing the ballooning debt: significant spending reductions, substantial tax hikes, or continued monetary easing by the Federal Reserve, which could include printing more money to acquire government bonds. While the latter might offer short-term relief, it risks triggering inflation and worsening inequality, favoring asset owners over wage earners.
The specter of a U.S. default, while currently unlikely, looms larger in discussions about national financial stability. A pronounced failure to honor debts would have catastrophic global repercussions, echoing previous economic crises.
Despite current concerns, the dollar maintains its dominant position in global finance, as few viable alternatives exist for investors. Economist Mohamed El-Erian notes that while some attempts to reduce dollar dependence are underway, the dollar remains the most practical option for large-scale transactions. The Bank of England’s governor recently remarked on the U.S. debt situation, acknowledging its relevance to the broader global economic framework.
Undoubtedly, the staggering $37 trillion debt figure is mind-boggling. To put it into perspective, saving $1 million daily would take over 100,000 years to reach such a sum. A more relatable metric is the debt-to-income ratio, which, despite being high compared to some nations, remains lower than that of Japan and Italy while benefiting from the U.S. economy’s robust growth potential.
Although historical warnings about the dollar’s future date back decades, its status as the world’s premier reserve currency continues. Nonetheless, the question remains whether this dominance will endure; economic dynamics can shift, and maintaining the dollar’s strength requires vigilance and responsible fiscal policies.