U.S. Debt Hits $37 Trillion: What This Means for Your Financial Future

As Donald Trump celebrated the approval of his Big Beautiful Budget Bill, concerns about the US borrowing habits returned. This budget, which includes major tax cuts, could add over $3 trillion to an already staggering $37 trillion national debt. Some critics, including Elon Musk, have openly condemned the plan, calling it “a disgusting abomination.”

Debates are surfacing about how much longer the world will lend to the US. Recently, the dollar’s value has dropped by 10% against the pound and 15% against the euro. Investors are also demanding higher interest rates to lend money, which means concerns about US fiscal health are rising.

Despite steady overall borrowing costs, the yield curve—showing interest rates for different loan lengths—has steepened, hinting at worries about the country’s long-term borrowing sustainability. Notably, even with slower interest rate cuts compared to Europe and the UK, which usually strengthens the dollar, the trend has been the opposite.

Ray Dalio, founder of a major hedge fund, warns that the US is at a tipping point. He estimates the nation could soon be spending $10 trillion yearly just on loan repayments. He advises that reducing the budget deficit from 6% to 3% could help avert future problems. However, Trump’s budget cuts focus more on tax reductions than spending.

In previous crises, one option has been for the US central bank to print more money to buy government debt, as seen after the 2008 financial crisis. However, this could lead to inflation, benefitting asset owners over everyday workers. The worst-case scenario could be a US default, which would have major implications for global finance.

For now, things seem stable, but the global reliance on the dollar poses challenges. Economist Mohamed El-Erian points out that while many are trying to reduce their dollar holdings, real alternatives are limited. The dollar remains “the cleanest dirty shirt” in the global economy.

The future of the dollar and US government bonds is being closely monitored. The Bank of England’s governor recently commented on this, indicating that US Treasury Secretary Janet Yellen is aware of the debt situation’s seriousness. Despite its colossal size, the US debt, at around $37 trillion, can be contextualized by its annual economic output of about $25 trillion.

Historically, some, like William F. Rickenbacker in his 1968 book “Death of the Dollar,” have warned about potential declines in the dollar’s status. The dollar remains resilient, but its continued strength is not guaranteed. Overall, as we face evolving challenges, discussions about debt management and fiscal responsibility are more crucial than ever.



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