It wasn’t even a year ago that fiscal hawks were wringing their hands over a new national debt milestone: The debt had hit $38 trillion, and interest payments on an annual basis would be 13 figures.
There have been calls to better align borrowing with this metric: namely, the yearly government deficit should be targeted at 3% of GDP, rather than its current level of more than 6%. This has garnered bipartisan support, but would require a mammoth effort: The mere 3% cut would require approximately $10 trillion in deficit reduction over the next decade to reach the target by 2036.
The issue is rising up the agenda for both those in public service and in the private sector: Bridgewater Associates founder Ray Dalio has long warned of an economic “heart attack,” whereby service payments on debt would one day choke out public-sector investments. Already, interest payments are equivalent to government spending on education and the military combined.
All that being said, investors still see U.S. Treasuries as one of the safest assets—if not the safest—on the market. While analysts suggest a creep in 20- and 30-year Treasuries in recent weeks is more likely a reflection of inflation concerns rather than a fiscal warning, the 30-year has risen toward Great Recession levels, stirring debate about whether the “bond vigilantes” are riding again.
The president also has his own take on the debt picture. Trump has demonstrated he’s aware of the nation’s fiscal trajectory and has suggested some methods to help rebalance—tariffs and golden visas, to name a few.
This argument may not be so convincing to debt hawks. As Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned earlier this month, the borrowing milestones being hit with increasing frequency “show the need for us to get our fiscal situation under control.”
She added: “Markets will only tolerate our unsustainable borrowing for so long; the risk of a fiscal crisis gets higher as the days pass. We need deficit reduction urgently.”
