The USA on the brink of economic collapse: why a national debt of $34 trillion threatens global stability

“When America sneezes, the world gets sick,” is a common joke about the economic power of the United States. But what happens when America has more debt than it can handle? At the beginning of Donald Trump’s second presidential term, the United States is facing enormous pressure from the national debt, which is already reached $34 trillion. By comparison, this amount is greater than the GDP of Germany, Japan and Great Britain combined. And if you also add the interest that has to be paid to service the debt, it becomes clear: even the most powerful economy in the world can suffocate. Trump and Musk are cutting government spending, in particular at the expense of supporting socially vulnerable population groups. For the first time, Biden cannot stand Trump’s return to the White House stands out with a public speech accusing him of violating the president’s sacred duty and the catastrophic consequences of cutting social spending for the most vulnerable Americans.

Who’s holding America on the hook?

The largest holders of US debt remain Japan, China and Great Britain. The Japanese own more than $1 trillion in US bonds, the Chinese – almost $760 billion.

«The US can afford anything because it can print dollars“, French politician Valéry Giscard d’Estaing once said. But trust in this scheme is no longer so concrete. For now, foreign investors are still clinging to “safe” US bonds, but each new day with Trump in power makes them nervous.

Infographic: AI “FACT”Infographic: IA “FACT”

New Trump, old song: cut everything

Donald Trump is back in the White House. And this time — with the mission of “cleaning up” government spending. His new creation — the Department of Government Effectiveness (DOGE) headed by Elon Musk — has already managed to cut social security budgets: in the US, this means a blow to 73 million citizens; curtail international programs to combat child labor; eliminate the Pentagon’s digital projects that dealt with cyber security and artificial intelligence.

«The government is not a business, and you can’t just “optimize” the state like Tesla or Twitter”, — Brookings Institute economist Lori Garth comments on the actions of Trump and Musk.

Former Democratic US President Joe Biden yesterday delivered his first major speech since leaving the White House, defending the Social Security Administration. He accused Trump of excessively cutting social spending, which threatens citizens who find themselves in difficult life circumstances. The administration of the 46th president claims that such measures can significantly worsen the lives of a number of vulnerable population groups, including the elderly, the disabled, and low-income families. Biden has publicly called the cuts to Social Security a “betrayal of a sacred national promise” and stressed that it could have serious psychological and financial consequences for Americans who depend on government benefits.

World anxiety: what will happen if the US is no longer a “bulwark”?

America has been a guarantor of financial stability and a standard of reliability for years. But when a country with such a debt starts saving on pensions and international aid, this is already a rather dangerous signal.

The question is not whether the US can pay the debt. The question is whether creditors will continue to believe in Washington. China, for example, is already gradually reducing its investments in American bonds. “The US risks losing not money, but reputation. And with it the influence“, warns The Guardian journalist Patrick Wintour.

For the first time in history, the US national debt exceeded the $33 trillion mark as a result of uncontrolled spending due to the coronavirus pandemic in 2020-2021. However, this number is not the limit: according to estimates of the Congressional Budget Office, the amount of debt could rise to a shocking 50 trillion over the next decade. Such figures cause concern against the backdrop of high loan rates. But, despite the panic, experts reassure: there are a number of myths that make the situation look worse than it actually is.

The most common myth is that the US should “fully” return all 34 trillion. In reality, the government is only obligated to pay interest and repay bonds that mature. As Nobel Laureate Paul Krugman explains, countries rarely pay off all their debt. An example here is Great Britain, which is still servicing debts from the time of Napoleon.

In the first year after the pandemic, debt servicing cost the US $695 billion: which is only 2.5% of GDP. However, this share may grow significantly: according to estimates by the Committee for a Responsible Budget, more than 13 trillion will have to be spent on interest over the next decade.

A separate problem is the $7.6 trillion in bonds due within the next year. This is a third of the entire state debt portfolio or a quarter of the annual GDP. The question is not only the size of the debt, but also whether the country can service it without a crisis of confidence and at what price.

33 trillion is a scary number out of context. In reality, everything is more complicated

Talking about the US national debt only in absolute numbers is like measuring the ocean with a teaspoon. By itself, the size of the debt of 34 trillion dollars does not say anything without the main thing – the ratio to GDP. Last year, this indicator was about 97%, which is below the critical mark of 100%.

«People are frightened by the numbers, but they forget that America is an economy with enormous potential, which can not only incur this debt, but also service it without interruption“, – emphasizes the chief economist of Moody’s Analytics Mark Zandi. His main argument is that such costs are fully justified in the context of available resources.

Is debt hurting the US economy? Not everything is so clear. Another myth is that public debt automatically slows down the economy. In fact, on the contrary. Thanks to debt, the government can invest in critical projects, from infrastructure upgrades to climate programs. “Yes, the debt is growing. But it is at his expense that the state is able to invest in the future“Zandi explains. He believes that the panic over the national debt is more a matter of politics than economics. The main thing is not to rush to return it. The USA is not on the verge of a debt abyss. The threat can be minimized either by cutting costs or by accelerating economic growth.

Another myth: only the USA is “choking in debt”. In fact, the debt burden is a global problem. In China, a debt boom is shaking up the real estate market, countries in the Middle East are already teetering on the brink, and the IMF is predicting a global rise in sovereign debt in the coming years.

Debt is not always evil. It is a tool that can work for development. However, under the condition of a responsible policy. As Zandi concluded, “it will only become a real problem when politicians ignore it or the economy starts to falter“. Responsible politicians – do Trump and Musk meet this policy?

The final without a full stop

America is not just a country with a lot of debt. This is a state whose debt has long become a global phenomenon. When spending cuts begin to resemble deregulation from the 90s, and international partners throw up their hands, the world has a right to ask: “Is everything under control?”

And while Elon Musk optimizes the government, the main question remains unanswered: will the world economy survive if America suddenly “stumbles”? The Congressional Budget Office has already warned that if things continue as they are, the US debt will reach $59 trillion by 2035. In other words, it will become larger than the entire world GDP at the end of last year. Servicing this debt will cost more than maintaining an army.