The United States’ national debt, currently standing at $38 trillion and exceeding 120% of annual economic output, demands action, experts warn. The nonpartisan Peter G. Peterson Foundation gathered a series of distinguished national economists and historians from outside the foundation in a collection of essays published Thursday. They analyzed risks to U.S. economic strength, dollar dominance, and global leadership. The experts also explored the national debt’s impact on interest, inflation and financial markets, with some characterizing this moment in history as a crisis. Collectively, they argue that the nation is operating under a dangerous fiscal gamble.
Assessing the mounting liabilities, Council on Foreign Relations President Emeritus Richard Haass and NYU professor Carolyn Kissane delivered a stark judgment: “In simpler terms, we are guilty of spending our rainy-day fund in sunny weather.” Meaning, the government has little “dry powder” left to fund a major military effort or stimulate the economy during a crisis.
The debt crisis has reached a critical threshold. The U.S. now spends approximately $1 trillion annually on servicing its debt—a figure that surpasses the country’s spending on defense. Economist Heather Long wrote that the 2020s are “fast becoming the era of big permanent deficits” with annual budget gaps projected to remain high (around 6% of GDP) even though unemployment is low, a startling departure from U.S. historical norms.
Economists warn that solutions that worked in the past—such as the post-World War II debt reduction or the 1990s surpluses—are unavailable today. Economist Barry Eichengreen explained that the debt’s steep decline after World War II was supported by a highly favorable interest-rate-growth-rate differential (low real interest rates and fast GDP growth). Likewise, the 1990s reduction was fueled by the “peace dividend,” enabling deep cuts in defense spending. “None of these facilitating conditions is present today.”
The Threat to National Security and the Dollar
Eichengreen, for his part, noted that current security threats from Russia, Iran, and the South China Sea create pressure for defense spending increases, not cuts. Compounding the problem is political polarization, which is cited as the most robust determinant working against successful fiscal consolidation. With major entitlement programs politically protected, this fiscal gridlock leaves raising additional revenue as the most viable path, given that the United States is a low tax-revenue economy compared to its peers.
The debt is framed not just as a financial strain but as a direct threat to security. Haass and Kissane emphasized that money spent on borrowing is “money not available for more productive purposes, from discretionary domestic spending to defense,” a classic crowding-out phenomenon. Other underfunded programs—including cybersecurity and public health—hollow out internal capacities that protect the homeland.
The crisis was characterized by Haass and Kissane as one that is moving in “slow motion,” which is the most difficult type for democratic governments to address effectively. Avoiding a sudden “cliff scenario” where bond markets crash, experts argue, is not avoiding the crisis itself, they added: “The day will come when the boiling water finally kills the frog.”
The institutional integrity undergirding the U.S. dollar is also at risk. Historian Harold James wrote that he sees the situation as “the middle of a very dangerous experiment with the U.S. dollar, and with the international monetary system, whose fundamental driver is a fiscal gamble.” Erosion of rule of law, accountability, and transparency raises the “specter of political risk in U.S. sovereign bond markets,” making dollar dominance harder to maintain. Disturbingly, the potential for political interference in institutions, such as the Federal Reserve or the tampering with national statistics—as seen in Argentina’s cautionary tale—further erodes confidence.
James’ colleague, Princeton politics professor Layna Mosley, cited the famous comment from the French statesman Valéry Giscard d’Estaing, who described the “exorbitant privilege” the U.S. enjoyed on the back of the dollar. She noted that by virtue of the global role of the U.S. dollar and the U.S. leadership of the global financial system, its government has been able to borrow significant amounts, on generous terms. But now, government actions and policy generate uncertainty and instability and “undermine the rules-based liberal international order from which the U.S. benefitted greatly.”
This loss of credibility empowers bond markets, and their displeasure can lead to sudden, painful economic consequences for everyday Americans through surging interest rates on mortgages and loans. Haass and Kissane turned to another metaphor, saying the situation is akin to “forgoing fire or automobile insurance just because the odds are you will not suffer from a fire at home or an accident on the road.”
[This report has been updated to include written remarks from Layna Mosley, of Princeton University.]