Crisis hidden in the chart: America's "debt snowball" is getting bigger and bigger

Author: NOAH SMITH

Compiled: Tim, PANews

I know you all have a lot of concerns about the Trump administration. Trump's tariff policy is causing stock markets to plummet and consumer confidence to collapse. In order to please Putin, Trump betrayed his European allies. Musk's Ministry of Efficiency is recklessly attacking U.S. government agencies in an attempt to eradicate leftist ideology. And Trump is expanding presidential power significantly, trying to imprison opponents and deport illegal immigrants.

But unfortunately, I have to make you worry about one more thing, because this issue is indeed crucial. As the current Treasury bond scale is becoming increasingly unsustainable, Trump and his Republican Party are planning to borrow heavily.

Before I explain why this crisis is so imminent, let’s make an important note: the majority of the responsibility for the existing debt problem is not with Trump, for which the Democrats and Republicans bear almost equal responsibility. Here is a brief history of rising federal debt in the U.S. since 1980.

You can see that the growth of US Treasury bonds is mainly concentrated in three significant leaps: the first occurred during the tenure of Reagan and Bush in the 1980s and early 1990s, the second was during the Great Recession (the subprime mortgage crisis) during the Obama period, and the third was during the COVID-19 pandemic when Trump first came to power. Overall, there are two main reasons for the long-term rise in U.S. government debt:

• Major challenges to the U.S. government’s debt-raising response (Cold War, Great Recession and COVID-19)
• Republican government cuts taxes but does not reduce spending

In the 1990s and early 2000s, the Democrats were a more financially responsible party, but this model was broken during the Biden administration. The federal debt burden has fallen during Biden’s tenure, but it is simply due to soaring inflation. Biden made large-scale spending: first the epidemic relief plan, then student loan exemptions and health insurance subsidies. Although the pandemic relief spending is over, other spending continues, and Biden has not even tried to pay for these expenses by raising taxes. As a result, even though the U.S. economy recovers strongly and the threat of the COVID-19 pandemic subsides, Biden continues to borrow at an unprecedented rate during non-epidemic or economic depression:

This is obviously very unwise. From 2021 to 2022, I have insufficient attention to debt issues for three reasons: A) Inflation is eroding the value of debt B) I expect interest rates to fall C) I think the government deficit will be controlled after the end of the epidemic relief expenditure. Most worryingly, the Democratic Party’s core fiscal policy concept has undergone a major change: they have gone from a party that advocates tax increases to a party that implements a spending plan without funding sources. Later, I began to realize the seriousness of the problem and began to call on the government to implement fiscal austerity policies.

But as shown at the top of this article, rising interest rates are the direct reason for the current debt problems. As the scale of government bonds issuance grows, these debts are forced to refinance at higher interest rates, resulting in a sharp increase in interest costs in GDP. These interest expense ratios are about to break the record high set in the early 1990s.

This is bad enough. But the bigger problem is that the Republicans are preparing for large-scale tax cuts, which will make the problem worse - while Musk's Department of Administration Efficiency (DOGE) has not taken any effective measures to control spending. The Democrats have become financially irresponsible, and what is even more incredible is that instead of implementing fiscal austerity to solve the problem, the Republicans have become more splurged. As a result, the U.S. economy is heading for trouble.