As Donald Trump begins his second term as President, the US confronts a debt crisis of historic proportions. With national debt now at $36 trillion, experts warn the Debt-to-GDP ratio could soon surpass 200%, placing immense strain on the economy.
Unprecedented Debt Levels
America’s debt has ballooned at an alarming pace. From $5.7 trillion at the start of the century to $23.2 trillion by 2020, the surge has been further exacerbated by the COVID-19 pandemic, which added $16 trillion in just a few years. Over the last 316 days, the debt has grown by $6.3 billion daily, meaning every American now effectively owes $108,000.
Currently, the national debt stands at 125% of GDP, but projections suggest it may reach 200% in the coming years. Such a ratio would mean the debt surpasses the size of the entire US economy, forcing the government to allocate more funds to servicing this debt than to critical sectors like infrastructure, education, and healthcare.
Rising Costs of Debt Servicing
As debt climbs, the US government is spending over $1 billion daily on interest payments alone. This year, servicing the debt is expected to exceed $1 trillion—more than what is allocated for national defence. Rising interest rates compound the problem, increasing borrowing costs for both the government and ordinary citizens.
Shai Akabas, from the Bipartisan Policy Center, explained: “The current level of debt is driving up interest rates, including mortgages, and raising living costs for households. This will dampen economic growth and reduce opportunities for future generations.”
Trump’s Strategy to Tackle Debt
President Trump has responded by establishing the Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy, to streamline spending and reduce waste. Musk is optimistic about saving billions through cuts, including reductions in public broadcasting budgets and financial support for advocacy groups.
However, Trump’s proposed tax cuts, including reducing corporate tax rates to 15%, have drawn criticism. Economists argue these measures may worsen the deficit by favouring the wealthy while reducing government revenue. Jessica Fulton of the Joint Center for Political and Economic Studies noted: “Further tax cuts for high-income groups will increase the deficit at a time when fiscal discipline is urgently needed.”
Economic Growth or Fiscal Crisis?
Higher interest rates have already strained American households, with the yield on 10-year Treasury notes rising from 0.6% in 2020 to 4.4%. This translates to increased borrowing costs for businesses and individuals, further slowing economic growth.
Brian Riedl of the Manhattan Institute criticised the administration’s approach: “Reintroducing tax cuts while the deficit has tripled is fiscally irresponsible.” Many Republican lawmakers now question the viability of Trump’s fiscal agenda given the economic constraints.
Balancing Debt and Policy Ambitions
Trump’s second term presents a delicate challenge: reducing the national debt while implementing his policies, including tax cuts and tariffs. Rising debt servicing costs leave little room for investment in areas like infrastructure or national security.
To offset spending, proposals to cut funding for environmental programmes and roll back parts of the Inflation Reduction Act are under consideration, though such moves may face legal and political hurdles.
Political Implications and Future Outlook
As the debt crisis deepens, political tensions between Democrats and Republicans are expected to escalate. Trump’s approach to handling the debt will not only shape his presidency but also influence America’s economic trajectory for years to come.
Despite the challenges, Trump’s team remains optimistic. Transition spokesperson Karoline Leavitt stated: “The American people have given President Trump a mandate to deliver on his promises, including reducing costs. He will deliver.”
With the US debt issue at the forefront of national debates, the stakes for Trump’s second term couldn’t be higher. The decisions made now will determine the nation’s economic stability and global standing for decades to come.
