America headed for bankruptcy: Debt-to-GDP ratio crosses 200%, every citizen now has a debt of over $100,000

Rising Debt: A Growing Concern

The US debt has grown exponentially in recent decades, jumping from $5.7 trillion at the turn of the century to $23.2 trillion by 2020. Following the COVID-19 pandemic, the country’s debt has surged by nearly $16 trillion, marking an unprecedented increase. Over the past 316 days alone, the debt has risen by $6.3 billion per day, or approximately Rs 5.32 billion. As a result, the average American citizen now shoulders a debt burden of about $108,000.

The situation is becoming more dire, with the US debt now standing at 125% of the country’s GDP. Experts predict that this debt-to-GDP ratio could reach 200% in the coming years, meaning that the national debt could be twice the size of the entire US economy. This is expected to result in the government spending more on interest payments than on essential areas such as infrastructure, development, and education.

Debt Servicing Costs and Economic Impact

As the debt continues to climb, the US government is spending over a billion dollars daily just to service the interest on this colossal debt. This year, debt servicing costs are projected to exceed $1 trillion, surpassing spending on national security. The cost of servicing the debt is also increasing due to rising interest rates, making borrowing more expensive for American households.

As reported by Fortune, Shai Akabas, executive director of the Bipartisan Policy Center, warned, “It’s clear the current amount of debt is putting upward pressure on interest rates, including mortgage rates for instance. The cost of housing and groceries is going to be increasingly felt by households in a way that are going to adversely affect our economic prospects in the future.” This burden is expected to stifle growth and shift government spending away from investments that would benefit future generations.

Trump’s Response: Cutting Government Spending

In an effort to tackle the growing debt, President Trump has established the Department of Government Efficiency. The department, led by Elon Musk and Vivek Ramaswamy, aims to reduce government spending and improve operational efficiency. Musk has expressed confidence that the initiative can save billions from the federal budget, with proposed cuts including reductions in public broadcasting budgets and financial support for advocacy groups focused on abortion rights.

Despite these efforts, Trump’s plans to implement major tax cuts could exacerbate the deficit. His proposed tax reforms include further cuts for corporations, which many economists argue will disproportionately benefit the wealthy. Critics of Trump’s tax policies, including Jessica Fulton, vice president of policy at the Joint Center for Political and Economic Studies, argue that his tax proposals will “increase the deficit because they will decrease taxes for those with the highest ability to pay, such as the corporations whose tax rate he’s proposed reducing even further to 15%.”

The Strain of Rising Debt on Economic Growth

Trump’s efforts to address the nation’s debt could be complicated by the higher costs of debt servicing. As interest rates rise, the cost of servicing the national debt increases, leaving less room in the budget for other initiatives. According to Brian Riedl, a senior fellow at the Manhattan Institute, “It’s irresponsible to run back the same tax cuts after the deficit has tripled.” Many Republican lawmakers are now questioning the feasibility of Trump’s tax cut plans, given the current state of the economy.

Interest rates, which have risen significantly since the pandemic, have already begun to put pressure on American consumers. The yield on 10-year Treasury notes, for instance, has increased from 0.6% in April 2020 to 4.4% in recent months, leading to higher borrowing costs for both the government and American citizens.

Challenges and Roadblocks Ahead for Trump’s Economic Plans

Trump’s second term will be marked by a delicate balancing act: how to reduce the national debt while implementing his economic policies, which include tax cuts and tariffs. The higher cost of servicing the debt complicates these plans, limiting the government’s ability to invest in critical areas such as infrastructure and national security.

To address this, Trump’s team is considering a range of strategies to reduce government spending. Ideas being floated include refusing to spend some of the money approved by Congress, though this could face legal challenges. Additionally, proposals to reduce spending on energy and environmental programmes, such as those included in the Inflation Reduction Act, are also under consideration.

Political Pressures and Economic Realities

As the US debt continues to rise, political pressures will mount. While President Trump is pushing for economic growth through tax cuts and other initiatives, rising debt servicing costs could limit his ability to implement these policies. The national debt, which has been a source of bipartisan disagreement for years, continues to be a point of contention between Republicans and Democrats. Trump’s handling of the debt issue will likely shape the political landscape for years to come.

Trump’s team remains optimistic, with transition spokeswoman Karoline Leavitt stating, “The American people re-elected President Trump by a resounding margin giving him a mandate to implement the promises he made on the campaign trail, including lowering prices. He will deliver.” However, experts warn that without addressing the growing debt burden, the US economy may face significant long-term challenges.

As the second term of the Trump administration begins, the nation’s escalating debt will be at the forefront of economic debates. How Trump navigates this issue will play a pivotal role in shaping both his presidency and the future of the US economy.