The US debt keeps rising, with no signs of slowing down. Just two months ago, the national debt was sitting at around $35 trillion.
Since then, it has surged to $35.9 trillion, and by the time you’re reading this article, it may have even surpassed $36 trillion.
This relentless growth in government borrowing is placing unprecedented strain on the economy.
With a newly appointed president, republican control of congress and a new government department, should Americans expect signs of relief?
How bad is the US debt?
The national debt has reached levels once thought unimaginable, climbing to nearly $36 trillion, driven by a federal deficit of $1.83 trillion in 2024 alone.
Interest payments on this massive debt are becoming a serious drain on government resources.
In September, the US paid $38 billion in interest—a figure that represents over 15% of the income tax revenue collected that month.
This rising cost of debt is narrowing options for essential public spending and putting pressure on policymakers to make tough fiscal choices.
The Congressional Budget Office (CBO) has warned that interest payments could continue to climb, taking a larger share of federal revenue over the coming decade if current spending patterns persist. With interest rates remaining high, the cost of borrowing is eating away at available funds for essential services, putting pressure on the government to reassess its fiscal priorities.
As inflation remains a concern, US credit ratings have also come under scrutiny.
Last year, Fitch Ratings downgraded the United States’ AAA credit rating to AA+, following months of political gridlock over the debt ceiling.
Moody’s recently followed by changing its outlook from stable to negative, citing growing fiscal concerns.
This credit downgrade reflects not only the debt itself but also Washington’s increasing difficulty in reaching agreements on fiscal reforms.
Household debt is rising, too
Rising debt is not only a government problem but a household problem too.
US household debt has reached an unprecedented $17.9 trillion, as reported by the Federal Reserve Bank of New York.
With consumer debt climbing across mortgages, auto loans, credit cards, and education loans, Americans are feeling the financial squeeze.
Although mortgage delinquencies remain relatively low, thanks to fixed monthly payments from past refinancing, other debt categories are showing signs of stress.
Credit card debt, in particular, has seen a marked increase in delinquency rates, with 11.1% of balances now overdue by more than 30 days.
This is the highest level since early 2012, signaling that many households are struggling to keep up with rising interest rates.
Auto loan delinquencies are also on the rise, particularly among younger and lower-income borrowers who often lack the stability provided by homeownership or high-income jobs.
Yet, there is some good news. Household income has grown faster than debt, bringing the debt-to-income ratio down to 82% compared to 86% before the pandemic.
This improved ratio suggests that most households may still have the capacity to manage their debts, though the increasing delinquencies highlight growing financial pressures on lower-income Americans.
Source: Yahoo Finance
Can the DOGE make a difference?
In response to the nation’s mounting debt, President-elect Donald Trump has proposed an unusual solution: the Department of Government Efficiency (DOGE).
This advisory body will be led by high-profile entrepreneurs Elon Musk and Vivek Ramaswamy and aims to reduce government spending by up to $2 trillion by targeting waste and fraud.
While the goal is ambitious, DOGE is not a formal government department but an advisory committee.
Trump’s strategy circumvents Congress by using a federal advisory committee structure, which allows private sector figures like Musk and Ramaswamy to contribute ideas without requiring Senate approval.
The committee will work closely with the White House and the Office of Management and Budget (OMB) to recommend efficiency improvements.
DOGE’s approach reflects Trump’s view that “an entrepreneurial approach to government” can help achieve the spending cuts that politicians have long struggled to implement.
Musk has promised transparency, including a public leaderboard ranking examples of wasteful spending.
However, some are questioning whether the involvement of billionaires like Musk and Ramaswamy—both with extensive business interests—could create potential conflicts of interest, especially given Musk’s federal contracts through companies like SpaceX.
Debt ceiling relief, but long-term challenges remain
With Republicans now controlling both chambers of Congress, Trump’s administration is likely to have more leeway to address the federal debt ceiling.
Last year’s debt ceiling impasse nearly led to a default, shaking the financial markets and prompting the downgrade from Fitch.
A unified government could avoid this scenario by swiftly passing a debt limit increase, sparing markets from the turbulence of another political showdown.
Market indicators suggest that investors are optimistic about a smoother debt ceiling process under unified Republican control.
Yields on 10-year Treasuries recently spiked to their highest level in four months, reflecting expectations of stronger growth and inflation under Trump’s economic policies, which include tax cuts and tariffs.
At the same time, the cost of insuring US debt through credit default swaps (CDS) has dropped, indicating that investors see a lower risk of default in the near term.
This market reaction implies that, while short-term debt ceiling battles may be resolved more smoothly, long-term fiscal concerns remain.
The CBO has warned that continued fiscal expansion without offsetting cuts could strain government finances.
If bond investors begin to worry that the government will not control spending, they may demand higher interest rates to compensate for increased risk.
This scenario could disrupt the bond market, as external investors may require higher premiums to finance US debt.
Moody’s has also warned that unchecked spending could lead to further credit downgrades, potentially increasing borrowing costs.
The debt ceiling reprieve may be a short-term fix, but the structural debt challenges are likely to persist.
Without significant spending cuts or reforms, the debt will continue to grow, and the burden of interest payments will increase.
As Musk and Ramaswamy prepare to tackle government waste through DOGE, the question remains whether these efforts can meaningfully impact the nation’s debt trajectory or if they will simply delay an inevitable fiscal reckoning.
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