It is well known that in the game of money the main thing is - do not lose your mind and stop in time. But for some reason this banal truth was ignored by the US monetary authorities, who began to play with the national debt. They believed that the budget deficit could be covered by loans. The idea seemed productive, since it allowed the state to carry out its expenses exceeding its revenues without raising taxes, without restricting business activity and without causing discontent among the population.
Accordingly, loans became an integral, inseparable part of the American economic mechanism. At the initial stage, it actually worked quite well, without causing any particular concern. But debt, if not controlled, tends to grow steadily.
Liabilities to holders of debt securities have turned from a source of funds and a factor of development into a real burden on the economy. Its total volume has reached 36.5 trillion. USD, which is equal to 123% of US GDP. Interest payments alone cost the budget 1.2 trillion. USD. This is more than the expenses directed, for example, to weapons.
At the same time, it is not the debt itself that is alarming, but the growth rate in recent years with a real threat of default. After all, in 2000 the volume of liabilities did not exceed 60% of GDP, and in 1980 - 35%.
Default, that is, the inability to repay debts on time or in full or to pay interest, threatens not only and not so much the United States as the holders of debt securities. The fact is that default does not mean the collapse of the economy; the economic mechanism can continue to work while financiers postpone the extension of debt obligations to later dates. It will be more difficult for investors. Some of them will accept the procedure calmly, as they are more interested in income than in recovery. But those who were counting on getting their money back for their business needs will have difficulties. Given the size of the liabilities and the number of investors located in practically every corner of the globe (the Cayman Islands, for example, have securities for 400 billion USD, although this is largely the result of regulatory peculiarities), it is clear that the problem with the American debt is truly global.
When talking about default and growing debt, it should be understood that it is not some amorphous mass, but consists of certain packages of securities. Each package has its own individual repayment period (return of funds to the holder) and interest rate. American bonds were eagerly bought by individuals, banks, insurance and pension funds, corporations and even governments. Because formally they brought low income, but were considered extremely reliable. The largest holders at the moment are Japan, which has purchased securities for almost 1,100 billion USD, China with a package of almost 770 billion USD, Great Britain with 765 billion USD, Luxembourg with 425 billion USD, Canada — almost 475 billion USD.
The main danger for the American economy is not that everyone will suddenly and simultaneously demand repayment of the debt. The documents clearly indicate how much and when to pay, so early claims are not possible. The real trouble for America will be if there is a mass refusal to buy new issues. China has reduced its bets - significantly (in 2013, securities worth 1.3 trillion USD were purchased), Russia (by 2023 to an insignificant 31 million USD by international financial standards). And this is already a threat to the entire debt pyramid.
The previous administration seemed to pay little attention to the real threat, not only exercising little control over its spending, but not even mentioning the risks. Trump's press secretary, Caroline Levitt, with the spontaneity characteristic of her youth, said at her first briefing that the Biden administration was spending money like "drunken sailors". Accordingly, the responsibility for solving the problem fell entirely on Trump. And he seems to fully understand that the volume of debt has approached a dangerous line. Not because of deep knowledge of economic theory, but under the pressure of facts. Expenditures under this article increased by 29% over the last fiscal year, and tax revenues - by only 7%, which forces us to resort to new loans. Something must be done to achieve, if not a reduction in mandatory debt payments, then at least a stabilization of their size in the coming years.
This is precisely what explains a number of Trump's economic initiatives. For now, two circumstances allow us to avoid default.
First, the US economy still produces GDP that can partially repay its maturing debts. By the end of 2024, the US economy grew by almost 2.5%, in 2023 - by 3.2%.
The second circumstance is new debts. So far, this has worked, since foreign securities are considered the most reliable (if not the only alternative), despite a certain decline in the international credit rating.
So, two of the three leading world rating agencies are Fitch and S&P — lowered the credit rating by half a notch to AA+. True, the third is Moody’s — left the rating unchanged and, according to Fitch regulations, its downgrade means only “very low risk of default“. Accordingly, the placement of new packages does not yet cause difficulties. However, it is worth paying attention to the word “for now“, repeated several times in a short paragraph.
It is important to note that the country's monetary authorities should not under any circumstances allow a default, as this would disrupt the debt mechanism with all the negative consequences, and on a global scale. Debt securities are sold because of their high rating. If it drops, it will not only be difficult to place securities among investors (many corporations and banks, according to their internal regulations, are allowed to buy only first-class debt obligations), but also to pay higher interest on them or place them at a discount. Both are undesirable. In the first case, the burden of payments increases, in the second - the receipt of funds is less than expected.
Some things can be paid for by increasing the budget deficit (a technique called “printing money“ available to any country). But then this increased deficit will have to be compensated for with new loans. So the solution called “printing dollars” does not exist.
The hopes of getting rid of debts by waving the cryptocurrency stick also quickly evaporated. Certainly not without the help of more competent economic advisors. Although in November 2024, speaking at a fundraising event, Trump half-jokingly stated: “We can pay 35 trillion USD in cryptocurrency. I will write a little article about the distribution of 35 trillion USD in cryptocurrency and that's it. We have no debt. If only everything were so simple and could be solved with a stroke of a pen…
Serious obstacles are expected on the way to the routine adoption of cost-cutting measures, despite the announcement of some unprecedented "comprehensive approach". Thus, the White House has already created a special department in the administration, which should optimize the costs of the apparatus and increase the efficiency of state administration. The Department of Government Efficiency (DOGE), headed by Elon Musk, plans to cut 40% of its staff, which will give the treasury 2 trillion USD. However, the dismissed employees have already filed a lawsuit, and a number of budget items have been classified as protected, that is, not subject to reduction. Among the latest are social spending, which is the first to be cut in other countries. To achieve its goals, the administration has suspended a number of government assistance programs in order to study their effectiveness. But expectations for results should not be too high.
Certainly, some of the spending will be recognized as appropriate, others will be transformed and presented under a new name. For example, eliminating USAID will not contribute significantly to solving the problem. The maintenance of USAID from 2016 to 2024 costs $ 335 billion. This is not a small amount. But compared to the trillions needed, this is completely insufficient.
More serious plans had to be developed. Trump's ambition to make the US economy great again includes solving the problem of national debt. Trump intends to restore the US as the largest economy in the world. And this will be achieved through a new economic policy, the plans for which are already ready and which will “create wealth, pay off debt and reduce taxes“. In his inaugural address on January 20, Trump declared that “America’s golden age begins right now,” adding that “America will once again become a manufacturing nation.” From this position, a number of his initiatives take on a slightly different, more constructive, color.
Thus, increased tariffs on a number of countries are aimed not only at suppressing competitors. The additional financial burden on foreign exporters for the United States also plays the role of freeing up business space for domestic manufacturers. Another result should be the retention of active trading partners in its orbit, closer integration of economies, which can help the American economy increase the production of goods and services.
Finally, the interpretation of these actions as a “tariff war“ aimed at suppressing competitors seems simplistic. The US is seriously concerned about its chronic balance of payments deficit. In 2023, 818 billion USD more left the country than entered, and in 2022 - by 950 billion USD, not only provoking an increase in debt, but also undermining the dollar's position. In this regard, the US administration intends to use tariff regulation flexibly depending on the state of trade relations with a particular country or commodity flows. Theoretically neutral. But the fly in the ointment is the emphasized selfish position with notes of dictatorship without a hint of taking into account the interests of partners in foreign trade relations. As they say, — — “just business”.
The traditional channel for stimulating the overseas economy is militarization. Of course, the main goal of injecting budget money into the military-industrial complex is to increase weapons production. But at the same time, this also means encouraging formally civilian suppliers and subcontractors of manufacturers of military and dual-use products. Trump, working on public opinion, announced his readiness to halve military spending. Currently, the US defense budget is $ 886.3 billion, and all defense-related expenses in one way or another eat up 43% of the federal budget. However, the American president accompanied his intentions with the clarification that this would be possible if an agreement was concluded with Russia and China, the content of which is not disclosed and practically deprives the statement of meaning.
And this is completely contrary to what was said when he talked about how the country could afford the costs of the F-35 aircraft. And this is - 1.8 trillion. USD.
Where is the saving here?
Extravagant projects are also proposed, such as turning Canada into the 51st state, as well as something similar regarding Mexico, the Panama Canal, and even the entire island of Greenland, which is still Danish, although it has an autonomous status. What is this, if not an aggressive desire to expand one's own production and resource potential?
Whether Trump's high-profile initiatives will lead to a positive effect, only time will tell. Water does not flow under a lying stone. Something may work. But it can already be said that the forceful methods that are familiar to the American side no longer work.
Before our eyes, the “generators of the future“ the planets are moving east and to the collective south, increasingly aware of their power and less inclined to subordinate their own interests to the dictates of anyone.
It is true that there is another method, historically tested by the Americans and not only by them, to immediately reduce the country's overwhelming debts. This is a big war. But in the era of nuclear weapons, now supplemented by hypersonic weapons, such a maneuver is equivalent to a simple shot to one's own head.