The US debt currently sits at around $36.6 trillion and the government is, once again, approaching its legal borrowing limit.
With no clear plan to raise the debt ceiling, analysts warn that a default could happen as soon as this summer.
At the same time, political divisions are deepening as lawmakers struggle to agree on a solution, while interest payments on the debt are piling up at an alarming rate.
Could the unthinkable happen?
Is the debt crisis getting worse?
The US budget deficit has surged past $1.15 trillion in the first five months of fiscal 2025, up 38% from the same period last year.
February alone saw a deficit of $307 billion, nearly two and a half times January’s figure.
Despite some spending reductions, the government continues to spend far more than it collects in revenue.
Interest payments on the debt have already hit $396 billion this year, now the third-largest budget item after Social Security and Medicare.
President Donald Trump has made fiscal responsibility a priority, launching the Department of Government Efficiency (DOGE) under Elon Musk to identify cost-cutting measures.
However, there has been little evidence that it has made any meaningful impact as of now.
Meanwhile, lawmakers are debating whether to extend Trump’s 2017 tax cuts permanently, which could cost an additional $3.3 trillion over the next decade.
The math simply doesn’t add up.
Can tax cuts fix the problem?
Trump and Senate Republicans want to extend tax cuts while keeping their official cost at zero through an accounting method that assumes they are already part of the tax code.
This approach would make it easier to pass the cuts without offsetting spending reductions, but not everyone is convinced.
Some Republicans argue that extending the 2017 tax law without cuts elsewhere would explode the deficit even further.
The House has already passed a tax plan that includes $4.5 trillion in cuts over ten years, offset by just $2 trillion in spending reductions.
However, the Senate remains divided, and some fiscal conservatives are pushing for far deeper cuts to entitlement programs like Medicaid and Social Security, as well as tax breaks for businesses.
The debate is delaying progress on broader budget negotiations, making it harder to address the looming debt ceiling deadline.
Will Congress raise the debt ceiling in time?
Raising the debt ceiling has become a political battle.
The House wants to package it with tax cuts and spending reductions, while some Senate Republicans prefer a separate vote to force Democrats to take a public stance on increasing borrowing.
But time is running out.
If Congress does not act, the US could default on its debt obligations by mid-2025, a scenario that, year by year, looks more realistic.
Treasury Secretary Scott Bessent expects a deal to be reached by summer, but there is no clear path forward.
Some Republican senators have never voted for a debt ceiling increase before and insist on major spending cuts in exchange.
Others believe the ceiling should be raised without conditions to prevent economic turmoil.
The lack of consensus raises the risk that the government could miss payments for the first time in history.
What happens if the US defaults?
A US default would be unprecedented.
The government would be unable to pay some of its bills, potentially delaying Social Security payments, federal salaries, and military funding.
The financial markets would react violently.
The volatility index would shoot up, with another big sell-off to be expected.
Additionally, interest rates would likely spike with the dollar losing credibility as the world’s reserve currency as a consequence.
In 2011, just the threat of a default led to a US credit rating downgrade and market turmoil.
This time, with higher debt levels and an economy that is flirting with a recession, things look much more bleak.
Bridgewater founder Ray Dalio has warned that the US faces a severe supply-demand problem with its debt, forcing the government to sell more than the world is willing to buy.
If buyers dry up, the Federal Reserve may be forced to print money to purchase government debt, which could fuel inflation and weaken confidence in the financial system.
He predicts that “shocking developments” could arise, including potential restructuring of US debt or diplomatic pressure on foreign nations to absorb more Treasury securities, which could strain diplomatic relations.
If foreign investors, who hold a significant portion of US debt, lose confidence and start selling off their holdings, borrowing costs could spiral out of control.
Once again, the US is in the spotlight for worrying reasons.
Once again, the debt ceiling discussions are causing anxiety to global investors.
Eventually, this situation has to be resolved instead of kicking the can down the road.
But is this administration the right one to fix it?
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