A Former Budget Director Warns: America’s National Debt Demands Urgent Attention

Global investors are increasingly viewing the U.S. dollar with caution, largely due to the nation’s worsening fiscal condition. This financial reality plays a crucial role in the Trump administration’s trade objectives, as significant reductions in trade deficits are unlikely without parallel decreases in the federal budget deficit.

For a long time, concerns about deficits were often dismissed. Low interest rates, limited alternatives to U.S. government bonds, and the market's muted response to repeated debt ceiling negotiations made warnings about unsustainable deficit spending seem alarmist. Even as a former White House budget director, I found myself doubting these persistent cautions.

However, the situation has changed dramatically.

There are two key developments: Firstly, the threat is now much closer. Federal budget deficits are exceeding 6 percent of GDP annually, a sharp rise from under 3 percent a decade ago. Interest rates on 10-year Treasury bonds have more than doubled, climbing to around 4.5 percent from just above 2 percent. This year, the government is expected to pay more in interest on the national debt than it spends on defense, Medicaid, or Medicare individually — a sobering milestone.

Secondly, public-held federal debt—excluding Federal Reserve holdings—has grown by roughly one-third relative to GDP since 2015. Projections indicate that by 2029, debt will reach levels not seen since the post-World War II era. This fiscal challenge is compounded by a polarized political climate, escalating tensions with foreign creditors, and diminishing confidence in American security guarantees that have historically underpinned the dollar’s status as the world’s safe-haven currency.

While the risks of a heavily indebted government are currently higher than before, it is true that the anticipated negative outcomes have not yet materialized. Historically, no modern economy with a floating exchange rate and debt denominated in its own currency—both conditions the U.S. enjoys—has defaulted on its obligations. So why raise concerns now?

The absence of current crisis does not guarantee future safety. The unique combination of America’s present fiscal factors means historical precedents offer little guidance, underscoring the urgent need for vigilance.