Why Haven't We Had A Debt Crisis... Yet?
The US national debt is approaching $40 trillion with no crisis yet because the government has repeatedly kicked the can down the road, and the dollar's reserve currency status provides a unique buffer. However, rising interest costs, political brinkmanship over the debt ceiling, and structural spending imbalances are making that buffer thinner — and the six available options to fix it all involve real sacrifice that politicians consistently avoid. ---
Key Concepts
| Concept | Definition |
|---|---|
| Treasury General Account (TGA) | The federal government's primary checking account held at the Fed; taxes and receipts flow in, all expenses including debt repayments flow out |
| Debt ceiling | A self-imposed legal cap on how much the government can borrow; when hit, the TGA must be drawn down; has triggered near-default crises multiple times |
| Debt-to-GDP ratio | Measures debt burden relative to economic output; currently ~121–130% depending on measure |
| Reverse auction (Treasury borrowing) | Treasury states how much it needs to borrow and raises the interest rate offered until enough buyers participate |
| Nominal vs. real debt value | Fixed-rate treasuries lose real value during inflation — this is the core inflation-as-debt-relief mechanism |
| Reserve currency privilege | Because the dollar underpins global financial plumbing, the US can absorb more debt than other nations before markets panic |
| Haigh's inverse relationship | Economist Richard Haigh tracked an almost perfect inverse relationship between net government spending and net household income, with gains increasingly concentrated at the top |
Notes
The Scale of the Problem
- US debt approaching $40 trillion — ~130% of GDP
- Nearly half of all outstanding debt was taken on in the last 6 years
- The government has spent $15 trillion more than it collected in taxes in just the last 5 years
- Interest payments have almost **tripled** in the last 5 years and now consume ~20% of the federal budget
- ~4% of GDP goes purely to interest payments
How the Debt Ceiling Actually Works
- When the debt ceiling is suspended and then reinstated, borrowing freezes at current levels
- The government draws down the TGA to keep funding itself without new borrowing
- In early 2025: TGA drew down from ~$800B to under $300B over 6 months
- In July 2025 (per video timeline): debt ceiling raised to $41.1 trillion via the "One Big Beautiful Bill Act," adding $5 trillion to the limit
- Within 3 months of that raise: $1.4 trillion in new debt added
Near-Default Episodes
- **2011**: Brinkmanship over deficit reduction
- **2013**: Debt ceiling weaponized against the Affordable Care Act
- **2023**: Congress demanded spending cuts; TGA fell below $40 billion — less than 48 hours of normal spending remained
- Following 2023: Fitch downgraded US credit from AAA to AA+; further downgrades since then
- US federal debt now rated similarly to mortgage-backed securities in 2007
Why No Crisis Yet
- The US can technically always print money to cover debt, making outright default effectively impossible
- The real risk is not non-payment — it's that repaid money is worth less (inflation) or that dollar demand collapses
- Global financial systems rely on Treasuries as a foundational, stable cash flow instrument
- Any uncertainty ripples far beyond a late interest payment
The Six Options to Address the Debt
- Popular because it requires least political sacrifice
- Debt-to-GDP did fall from ~132% (pandemic peak) to ~121% — but this is partly a base-effect illusion
- Long-term trend still heading in the wrong direction
- 4% annual GDP growth would be required just to cover interest — US average since 2000 is ~3%
- **Verdict**: Insufficient on its own given current interest burden
- Fixed-rate debt loses real value during inflation — effective partial debt erasure
- Works only once: future lenders will demand higher rates to compensate, making new borrowing more expensive
- Risks undermining dollar as global reserve currency
- Harms ordinary people already facing cost-of-living pressures
- **Verdict**: More harm than good
- Total federal revenue as % of GDP has been remarkably stable since WWII — even when top marginal rates were 90%
- Government spending has nearly doubled as a share of GDP since then — more programs and commitments
- Tax burden has shifted significantly from wealthy asset owners toward middle-income earners
- Middle-income earners have higher propensity to spend, work, and reinvest — taxing them disproportionately suppresses growth
- Wealthy institutions already finance the deficit indirectly by purchasing government bonds — they have the capital
- **Verdict**: Necessary component but insufficient alone; political will is the barrier
- Most spending is **non-discretionary**: pensions, healthcare, debt interest — not directly controllable without structural reform
- Discretionary cuts attempted ~2024 with poor results
- Military is next largest discretionary category — but spending has increased, and military employment is absorbing workers who can't find other jobs
- **Verdict**: Limited room without structural overhaul
- Low growth, low inflation, low interest rates to contain a large debt pool
- Not ideal for asset owners or growth
- Could serve as a last-ditch stabilization mechanism to avoid wider crisis
- **Verdict**: A possible soft landing, not a solution
- The default choice — has "worked" so far due to dollar privilege
- Political incentives favor this: sacrifice is unpopular, future crises are someone else's problem
- Each debt ceiling game played with higher stakes ("shaking a taller Jenga tower")
- **Verdict**: Increasingly dangerous as debt compounds
The Political Economy of Who Benefits
- Government spending increasingly flows to private enterprises via grants, contracts, credits, subsidies, bailouts
- Shareholders capture this spending; asset owners benefit from increased government outlays while contributing proportionally less revenue
- Creates a structural incentive for wealthy actors to prefer borrowing over taxation — they benefit from both the spending and the interest income
Actionable Takeaways
- Track Treasury General Account balances (Treasury releases daily reports) to monitor real-time fiscal stress
- When evaluating politicians' fiscal rhetoric, check which party is in power — position on debt almost always inverts with power
- Understand that debt ceiling crises are largely self-inflicted and manufactured, not organic market failures
- Recognize that "growing our way out" requires ~4% sustained GDP growth just to cover interest — benchmark any political promise against this figure
- When assessing tax policy arguments, distinguish between tax rate and total revenue as % of GDP — high rates don't automatically produce proportionally higher revenue, but rate reductions have shifted burden downward
Quotes Worth Keeping
Threatening to push the government into default in the name of fiscal responsibility is a little bit like refusing to pay back your credit card because you are starting a new budget.
Playing chicken with a debt half the size of our GDP wasn't a great idea to begin with. Playing the same games with a debt level we have today has had real consequences.
If they can find the money to purchase bonds, they can find the money to pay taxes.
It's easier and far more popular to just make the future someone else's problem.