US National Debt Surpasses $37 Trillion: A Cause for Concern?

Despite concerns, the dollar remains a key global currency, while debates on fiscal policy intensify.

The United States recently reached a milestone with its national debt skyrocketing to $37 trillion, igniting fresh concerns about the sustainability of its borrowing practices. Following the passage of Donald Trump's controversial Big Beautiful Budget Bill, which is projected to add an additional $3 trillion to this already staggering debt figure, critiques are intensifying. Notably, even former supporter Elon Musk has condemned the proposal, labeling it a "disgusting abomination."

The spiraling debt raises important questions regarding how much longer international creditors will be willing to fund the U.S. Financial strains have begun to manifest, evidenced by the declining value of the dollar alongside rising borrowing costs. Since the beginning of the year, the dollar has depreciated by 10% against the British pound and 15% against the euro. While overall borrowing costs remain steady, the growing gap between interest rates for long-term and short-term loans indicates increasing skepticism about the long-term viability of U.S. financial policy.

Ray Dalio, founder of the world's largest hedge fund, warns that the U.S. is nearing a pivotal moment in its borrowing capacity. He projects that without immediate intervention, annual loan and interest repayments could reach $10 trillion. To avert this crisis, Dalio suggests that the budget deficit needs to be curtailed significantly—from its current level of 6% to 3%. However, Trump’s new budget bill prioritizes tax cuts over spending reductions, propelling the country in the opposite direction.

In the event of financial distress, options for the U.S. government include slashing public spending, raising taxes, or a potentially risky approach of printing more money, which could exacerbate inflation and inequality. A catastrophic alternative would be a U.S. default on debt, a scenario that would ripple throughout the global financial landscape.

Despite these alarming prospects, experts believe a crisis is not imminent, primarily because there are limited viable alternatives to using the dollar. Economist and former bond investment chief Mohamed El-Erian notes that while entities are exploring ways to decrease dollar dependency, the lack of scalable options leaves the dollar as the dominant currency. The idea of the dollar being the “cleanest dirty shirt” reflects its somewhat precarious yet necessary position in global finance.

Recent statements from the Bank of England highlight the awareness surrounding U.S. debt levels, emphasizing that while the dollar is not currently under threat, its status is actively monitored. The enormity of a $37 trillion debt is hard to fathom; to put it in perspective, saving a million dollars each day would take 100,000 years to accumulate such an amount.

Though the U.S. debt-to-income ratio is considerably high, it still stands in comparison to countries like Japan and Italy, strengthened by the country's innovative economic structure. The looming implications of escalating debt continue to be a critical topic, challenging conventional beliefs about the dollar's enduring status as the world's reserve currency.