Why Haven't We Had A Debt Crisis... Yet?
TL;DR
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
Treasury General Account (TGA)
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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
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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
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Measures debt burden relative to economic output; currently ~121–130% depending on measure
Reverse auction (Treasury borrowing)
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Treasury states how much it needs to borrow and raises the interest rate offered until enough buyers participate
Nominal vs. real debt value
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Fixed-rate treasuries lose real value during inflation — this is the core inflation-as-debt-relief mechanism
Reserve currency privilege
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Because the dollar underpins global financial plumbing, the US can absorb more debt than other nations before markets panic
Haigh's inverse relationship
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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
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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.
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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.
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If they can find the money to purchase bonds, they can find the money to pay taxes.
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It's easier and far more popular to just make the future someone else's problem.