Concerns Rise Over US Debt Hitting $37 Trillion as Economists Weigh In

Economists express growing concern over the US's escalating national debt, amplified by recent tax cuts in Donald Trump's budget bill. The implications for the dollar's strength and potential economic trauma raise alarms about the future sustainability of American financial practices.

The US national debt has now reached a staggering $37 trillion, leading to serious discussions among economists and policy makers regarding the sustainability of such borrowing. The latest increase can be largely attributed to the newly passed budget plan, deemed the Big Beautiful Budget Bill by Donald Trump, which is projected to incite an additional $3 trillion in debt.

Critics, including Trump’s former supporter Elon Musk, have labeled the budget bill as "disgusting," raising red flags about the limits of how much international creditors will continue to lend to the US government. The increasing debt load has contributed to a devaluation of the dollar, with its value falling 10% against the pound and 15% against the euro this year, and pushing investors to demand higher interest rates for US loans.

Despite relatively stable borrowing costs overall, the yield curve—a marker of investor confidence—has steepened, indicating rising fears over the longevity of US borrowing practices. Ray Dalio, founder of the largest hedge fund globally, has stressed that if the current path is not addressed soon, the cost of debt repayment could skyrocket to $10 trillion annually.

Potential pathways to mitigate impending economic fallout include significant cuts to government expenditure, increases in taxation, or a combination of both. While Trump's plan has made some spending cuts, it has favored tax reductions, indicating a troubling trajectory.

Historically, in situations of financial duress, the US central bank has opted to print more money to cover government debt, as observed during the 2008 financial crisis. However, this can stir inflation and heighten economic inequality, benefiting asset owners over laborers.

In a worst-case scenario, the country could face a default on its debt, a situation that would destabilize both the US economy and the global financial system. Despite these concerns, many experts believe that an immediate crisis is unlikely due to the world’s limited alternatives to the US dollar.

David El-Erian, a notable economist, likens the dollar to the "cleanest dirty shirt," highlighting the challenges faced by investors in finding viable substitutes while the world continues to adjust its dollar holdings.

The debate surrounding US debt and the dollar's global status continues at high levels of finance and governance. The governor of the Bank of England acknowledged that while the dollar's status as a dominant currency isn’t fundamentally threatened at present, it remains a critical issue warranting close attention.

In terms of debt evaluated against national income, the US economy—which generates around $25 trillion annually—still fares better than countries like Japan and Italy. However, with strategies like William F Rickenbacker's 1968 book warning against the dollar's decline, it becomes evident that complacency regarding currency stability may be misguided. The sustainability of US debt and the future of the dollar remains a pressing concern for policy makers and economists alike.