Imagine running into a movie theater and yelling “fire!” But just as people are starting to panic, you add, “I mean … not yet … but maybe at some unknowable point in the future.”
That’s a fair description of where many of us tracking the U.S. fiscal outlook find ourselves at this moment. For years, I wasn’t an alarmist about the national debt. During the Biden administration, I even criticized those calling for more austere budget policy; I thought that fiscal austerity would do more harm than good.
Our fiscal reality has changed significantly since those days, and so has my stance on public debt. Here’s why:
The basic budget math has worsened as the interest rate on our national debt has climbed closer to the economy’s growth rate. If the compounding debt consistently grows faster than the economy, we risk entering a debt spiral.
Our annual deficits, currently about 6 percent of G.D.P., are way above where history says they should be. We’re not in a recession, but we’re borrowing as though we were.
Politically, neither party shows any interest in addressing the problem. President Trump and Treasury Secretary Scott Bessent, in fact, are aggressively creating the very risks I worry about.
Mr. Trump does so by explicitly trying to manipulate the Federal Reserve to lower the nation’s debt payments.
Mr. Bessent may be even worse, abandoning the steady hand that’s essential for being Treasury Secretary for hedge-fund swagger. He’s flexing on markets — “I am the house now,” he said, referring to the Treasury’s recent purchase of Japanese yen to support the dollar — by daring currency and bond markets to bet against him. They did. The traders quickly waved off his swagger, and bond yields rose.
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