Washington DC, July 8, 2025 --  

Americans and their leaders don't care about the national debt. This won't end well.

When the U.S. Congress passed the Trump budget bill last week, eyes of finance experts were focussed squarely on America's rising national debt. The new law will add an additional $3.5 trillion to the national debt through 2034, according to the non-partisan Congressional Budget Office.¹ And the real cost will probably be higher, given the accounting gimmicks crammed in to the bill before passage to make it appear less costly, as noted by the libertarian-oriented CATO institute.²

Sadly, almost no Americans today care about the national debt. It has become a concern solely of inside-the-beltway policy wonks.

But it wasn't always this way. Back in the 1990s, deficit spending was a big political issue. In those days, Newt Gingrich's Republican Party was the main home of fiscal hawks who forced a divided government led by President Bill Clinton to a deal that not only balanced the budget, but led to a fiscal surplus by the turn of the millennium. Today, those old-time Republican budget hawks are all retired or cowed into submission by the MAGA cult and its threat of primary election challenges for anyone failing to toe the line.

How did this happen?

The slide from fiscal responsibility was a slow process that took a quarter century. The year 2000 tax cuts by President George W. Bush destroyed the federal surplus even before the wars in Afghanistan and Iraq blew out the debt. Back then, Americans were more scared of Osama Bin Laden than abstract budget numbers. When 2008 financial crisis dropped interest rates to nearly zero for over a decade, it made debt service so cheap that it seemed for awhile that the national debt didn't matter. But then the post-pandemic rise in inflation hit, forcing a rise in interest rates and sending the cost of debt service skyrocketing.

The national debt is no longer a problem of the future. The problem is now. For the first time ever last year, the United States has to spend more on debt interest than it spends on the military or Medicare -- over half a trillion dollars.³ This is real money. if America didn't have this giant debt hanging around its neck, it could spend twice as much on the military to deter China, or spend twice as much on medical care for Americans. Those interest payments are nothing more than a drag on what the government can do, just like a huge credit card debt is a huge drag on a household's budget.

With the new budget bill now law, this situation is only going to get worse faster as the total debt rises faster year after year, and the mount of money that has to be spent to pay the interest eats more an more out of what is available for the military, health care, and other government functions.

Regular Americans won't begin to feel the pain of these problems right away, meaning they will continue to ignore the problem. And as long as that's true, their congressional representatives can continue to ignore the problem as well.

It may take a debt crisis before Americans and their leaders begin to care about turning things around. The Trump administration is hell bent on getting a new Federal Reserve Chairman willing to lower interest rates, an action that would help make it cheaper to get business and housing loans, as well as to service the national debt. But while lowering interest rates from 4 to 3 percent might save 25 percent on the cost of debt service, it won't change the long-term picture. And lowering interest rates risks fueling inflation, especially given other inflation drivers like rising tariffs and the move to onshore manufacturing.

And this ugly end game: high inflation in excess of interest rates. Given the absence of the political will to fix the debt problem, the Federal Reserve's inflation fighting mission will be pushed aside to keep interest rates and debt service costs artificially low -- say at the one percent seen during much of the 2010s -- even though inflation may be hovering at around 10 percent or more. This would reduce the inflation-adjusted size of the national debt by 9 percent every single year. This will also reduce the real value of any household debts held by the majority of Americans who don't keep their personal finances in order.

The downsides, however, are huge. This scenario woiuld destroy America's status as a financial safe haven. It will greatly erode the assets of anyone holding U.S. bonds It would also send consumer and grocery process surging in ways that would be deeply unpopular and financially ruinous for savers and those on fixed incomes. But by the time this happens, many of today's politicians may at the end of their careers or retired. So who cares? That seems to be the prevailing calculus in today's Congress.

Related Web Columns:

Worrying Trends, February 21, 2022

Enabler In Chief, June 14, 2022

He Didn't Start the Fire, April 19, 2022

Getting Away With It, October 19, 2019

Coming Drama, March 12, 2013

Living Like There's No Tomorrow, November 9, 2010

From America to Zimbabwe, March 24, 2009

Notes:

1. Congressional Budget Office, Estimated Budgetary Effects of an Amendment in the Nature of a Substitute to H.R. 1, the One Big Beautiful Bill Act, Relative to CBO's January 2025 Baseline, June 29, 2025

2. CATO Institute, The Senate’s Big Beautiful Blunder Could Increase the Debt by $6 Trillion, July 2, 2025

3. House Budget Committee, Interest Costs Surpass National Defense and Medicare Spending, May 16, 2024