‘Some form of crisis is almost inevitable’: The $38 trillion national debt will soon be growing faster than the U.S. economy itself, watchdog warns

Core Insights - The report by the Committee for a Responsible Federal Budget (CRFB) outlines a potential "Austerity Crisis" where loss of market confidence could lead to abrupt spending cuts or tax hikes, risking the worst economic contraction in nearly a century [2][3] - The U.S. national debt has reached 100% of GDP, indicating a precarious financial situation that could lead to multiple types of fiscal crises, including financial, inflation, currency, default, and gradual crises [4][10] Austerity Crisis - The CRFB highlighted Greece's experience during the 2010s as a cautionary tale, where austerity measures led to severe economic downturns and high unemployment [1] - A fiscal contraction of 5% of GDP could reverse modest growth into a 3% economic shrinkage, marking a recession deeper than any recorded since 1950 [1] Financial Crisis - A loss of confidence in the U.S. Treasury market could lead to uncontrollable interest rate spikes, devaluing existing bonds and potentially causing cascading failures in financial institutions [5][6] - The 2023 collapse of Silicon Valley Bank serves as a small-scale example of how rapid rate increases can destabilize the banking sector [6] Inflation Crisis - The Federal Reserve may be pressured to "monetize" the debt, which could lead to spiraling inflation, eroding savings and purchasing power [8] - Hedge fund billionaire Ray Dalio has warned about the risks associated with the U.S. monetizing its debt, suggesting a potential breakdown of the monetary order [8] Currency Crisis - Reckless fiscal policy could result in a sudden depreciation of the U.S. dollar, undermining its status as the world's reserve currency and increasing import costs [9] Default Crisis - Although considered unlikely, a failure to pay interest or principal on the approximately $31 trillion in public debt would have catastrophic consequences, freezing global credit markets and crashing stock markets [10] Gradual Crisis - A slow decline due to high debt could crowd out investment and slow growth over decades, with projections indicating real income per person could be 8% lower by 2050 [12] - Japan is cited as an example of a gradual crisis, sustaining high levels of debt without an acute crisis but experiencing minimal growth [13] Triggers and Warning Signs - The report indicates that various catalysts, such as a recession or a poor Treasury auction, could trigger a crisis [14] - Interest costs on the debt surged to approximately $1 trillion last year, consuming 18% of federal revenue, highlighting the deteriorating fiscal situation [15]