by Kenneth S. Rogoff, Foreign Policy, September/October 2025- For much of the past quarter century, the rest of the world has looked in wonder at the United States’ ability to borrow its way out of trouble. Again and again, under both Democratic and Republican administrations, the government has used debt more vigorously than almost any other country to fight wars, global recessions, pandemics, and financial crises.
Even as U.S. public debt rapidly climbed from one plateau to the next—net debt is now nearing 100 percent of national income—creditors at home and abroad showed no signs of debt fatigue. For years after the 2008–9 global financial crisis, interest rates on Treasury debt were ultralow, and a great many economists came to believe that they would remain so into the distant future. Thus, running government deficits—fresh borrowing—seemed a veritable free lunch. Even though debt-to-income levels jumped radically after each crisis, there was no apparent need to save up for the next one. Given the dollar’s reputation as the world’s premier safe and liquid asset, global bond market investors would always be happy to digest another huge pile of dollar debt, especially in a crisis situation in which uncertainty was high and safe assets were in short supply.
The past few years have cast serious doubt on those assumptions. For starters, bond markets have
become far less submissive, and long-term interest rates have risen sharply on ten- and 30-year U.S. Treasury bonds. For a big debtor like the United States—
the gross U.S. debt is now nearly $37 trillion, roughly as large as that of all the other major advanced economies combined—these higher rates can really hurt. When the average rate paid rises by one percent, that translates to $370 billion more in annual interest payments the government must make. In fiscal year 2024, the United States spent $850 billion on defense—more than any other country—but it spent an even larger sum, $880 billion, on interest payments. As of May 2025, all the major credit-rating agencies had downgraded U.S. debt, and there is a growing perception among banks and foreign governments that hold trillions of dollars in U.S. debt that the country’s fiscal policy may be going off the rails. The increasing unlikelihood that the ultralow borrowing rates of the 2010s will come back any time soon has made the situation all the more dangerous.
... President Donald Trump’s efforts to place the blame for high rates on the Federal Reserve Board are deeply misleading.... If the Trump administration (or any other administration) moves to undermine the Fed’s independence, that would ultimately raise government borrowing costs, not lower them. ... with the United States taking on such extraordinary levels of debt, the dollar no longer looks unassailable, particularly amid other uncertainty about U.S. policy. In the near term, global central banks and foreign investors may decide to limit their total holdings of U.S. dollars. Over the medium and longer term, the dollar could lose market share to the Chinese yuan, the euro, and even cryptocurrency. Either way, foreign demand for U.S. debt will shrink, putting further upward pressure on U.S. interest rates and making the math of digging out of the debt hole still more daunting. ... the possibility of a once-in-a-century U.S. debt crisis no longer seems far-fetched.
... Trump administration’s economic policies are an accelerant, rather than the fundamental cause, of the United States’ debt problem.
...the United States could default outright (in the legal sense) on its debt. ... the United States can print dollars rather than refuse to honor its debt, a far simpler option is to use high inflation to achieve a partial default. ...a truly massive bout of hyperinflation, such as what happened in Germany after World War I, would effectively wipe government debt off the books, it would wipe out the rest of the economy, as well. ... One way to manage the effects of inflation is to use it in conjunction with financial repression. .... the Federal Reserve can also issue its own stablecoin, or central bank digital currency.
... For too long, the status quo approach in Washington has been to ignore the massive debt problem and hope that a return to miraculous levels of growth and low interest rates will take care of it. But the United States is approaching the point at which the national debt could undermine not only the country’s economic stability but also the things that have sustained its global power for so many decades, including the military spending that it has leveraged in many ways to maintain the dollar’s formidable influence over the global financial system since World War II. ...
The United States may avoid a debt crisis, and Trumpian and progressive economists who count on growth dividends ultimately outweighing the interest costs of higher debt may turn out to be right. But the debt policy that both the Republican and the Democratic Parties have engaged in over the first quarter of the twenty-first century amounts to a huge wager on long odds, especially if the country wants to remain a dominant power for the rest of this century and beyond. Given the current trajectory of deficits, it has become much more difficult to sustain the belief that no matter how high U.S. debt gets, it will have no effect on the country’s capacity to fight financial crises, pandemics, climate events, and wars. And it will certainly be a drag on the country’s growth.
It is impossible to predict how and when a U.S. debt problem may erupt and what the consequences will be: unpalatable austerity, high inflation, financial repression, partial default, or a mix of these. There are strong reasons to assume that inflation will have a pronounced part, as it did during the 1970s. Regardless, a debt crisis will be destabilizing for the United States, the global economy, and the dollar’s reserve status. Left unchecked, it could erode the country’s position in the world. (link)
Rod's Comment
This is an important article. You may find it at the above link. It is behind a paywall, but one may read one free article every so often from Foreign Policy. In my excerpts from the article above, the highlighting is mine.
While I am deeply concerned about Trump's authoritarian tendencies and disregard for our constitutional liberties, I am equally concerned about Trump's management of the economy. Of course, as the article states, the financial crisis we are likely to soon face was decades in the making. Trump, however, seems to be ignorant of economics and surrounds himself with people who will only tell him what he wants to hear. His tariff policy, his increase in the national debt, and his threat to the independence of the Federal Reserve could exacerbate an already dangerous situation.
I hope that we are lucky throughout the remainder of Trump's term and we are spared a crisis that pushes the US over the financial cliff. I don't know that we will be. Things happen. If we are lucky, then perhaps some sanity can return to economic policy. That would require Democrats not pushing for greater and greater spending and Republicans accepting that not all tax cuts contribute to greater economic growth. Tax cuts can contribute to growth, true, but tax cuts should be recognized as a tool in the toolbox, not an article of faith.
If we do survive the remainder of Trump's term without a financial disaster, then either a moderate Democratic administration or a normal Republican administration could return us to sound economic policy. My fear, however, is that the successor to Donald Trump, if a Republican, will continue the economic policies of Trump, or that a progressive Democrat of the AOC/Bernie Sanders school will get elected and pursue economic policies not much different from those of Donald Trump. Many of the more progressive Democrats subscribe to Modern Monetary Theory, which says debt and deficits simply don't matter. With either a Trump clone or a Sanders/AOC-type successor to Trump, we are screwed.
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