Will the US ever face a real debt crisis, or is it structurally too big to fail?
CBO projects federal debt held by the public to reach roughly 175% of GDP by 2056, with net interest costs approaching 7% of GDP.
Japan makes this more interesting. For decades it has been the obvious counterexample to debt-doom arguments. Debt above 200% of GDP, its own currency, enormous domestic savings, a central bank capable of buying government debt, and no sovereign debt crisis.
Then there is the geopolitical feedback loop. I wonder how separable America’s fiscal privilege is from its geopolitical power.
In crude reptile-brain terms, America borrows money to build the weapons systems that help keep everyone inside an American-led system, and that system helps preserve America’s extraordinary ability to borrow. The snake is eating its own tail.
I’m wondering where the actual limit is. Could US debt theoretically reach 500% of GDP, with the US increasingly absorbing global capital because the rest of the world still needs dollars and treasuries? And if inflation becomes part of how that debt is managed, does extreme wealth inequality weaken the political constraint, since those with the most economic and political influence are also the least exposed to rising prices?