According to Treasury figures in October, the USA is now carrying more than $38 trillion in gross national debt. That’s the highest level in history. In fact, the figure totals more than the yearly output of China, India, Japan, Germany and the UK combined. It’s accelerating too – the latest one trillion dollars was added in just two months from August to October. It adds up to over $110,000 per American citizen, and the only remaining solution to service the debt is to make everyone else poorer.
The Crippling Debt-to-GDP Ratio
The government continues borrowing aggressively. The Congressional Budget Office estimates that the federal deficit for the 2025 fiscal year is approximately $1.8 trillion alone – that’s the amount Washington has to finance to simply meet its promises, and is exceptional given that we are not in an official recession or wartime emergency.
Debt-to-GDP ratio – how the total pile compares to the country’s combined output – has blown past 100%. In simple terms, the government now owes more than the entire US economy put together. Similar ratios have existed in the past, but historically only appeared in extreme conditions such as post-war reconstruction.
Interest Rates are the Real Story Here
There’s a new cost that comes from carrying this much debt: interest.
As interest rates have risen in recent years, the price of servicing the debt has exploded. Federal interest costs are now over $1 trillion a year and projected to continue climbing, with analysts estimating a total spend of over $14 trillion on interest in the coming decade. Should that happen, the interest payments alone would outpace almost every other government expense.
The government is therefore borrowing more money, at higher rates, partly to pay the interest on money it already borrowed before. So, what’s the end goal?
What Can the US Government Do About It?
In theory, Washington has several ways to fix this.
- Cut spending at scale: this is politically unattractive as it would affect large, popular and expensive programs – neither party is currently talking about this
- Raise taxes broadly enough to close the gap: In fact, the opposite trend appears to be in motion. Independent scoring of recent tax and spending legislation by the Congressional Budget Office and external watchdogs suggest that new law is set to add trillions more to the debt by cutting taxes, rather than using higher tax rates to attack the deficit
- Grow faster than the debt increases: The White House argues that faster economic growth will increase tax revenue and shrink the debt burden as a share of GDP. It sounds great, but the government’s own forecasters describe it as nearly impossible. The US workforce is shrinking and aging, productivity gains are not consistent across groups, and the higher cost of borrowing can slow private investment.
- The only real option: Inflation
The Secret Weapon That Will Tackle the Problem at Your Expense
Artificially high inflation quietly reduces the real value of the dollar, which not only compresses the purchasing power of your money, but it also reduces the true cost of what the government owes. If, in five years, wages and prices are both higher than today, then each dollar the government pays back in the future will be worth less in purchasing power than the dollar it borrowed. At the same time, higher nominal wages and higher nominal company revenues also means higher nominal tax receipts – even if living standards stagnate or decline – meaning your money is worth less and you pay more in tax.
In budget terms, inflation acts like an invisible tax. It helps lower the real weight of the $38 trillion debt without Congress needing to announce benefit cuts or explicitly hike taxes. It also helps partially offset interest costs that are now consuming a growing share of federal spending.
Officials won’t describe this strategy openly, but policy behaviour points in that direction. The deficit is enormous and keeps growing, and the government continues borrowing at a pace of nearly $2 trillion extra per year. Analysts are confident it will continue at this escalated pace.
Who Will Win?
Households and investors who already hold assets are insulated from inflation, and in some cases will even benefit. A homeowner with a fixed low-rate mortgage watches that mortgage shrink in real terms as wages and prices rise. Investors now have access to high grade corporate bonds yielding 5-6%, a return that didn’t exist during the zero-rate years in the decade following 2009. That income can offset inflation and generate cash flow.
There’s also a renewed market for distressed debt. When weaker companies struggle to refinance at today’s higher rates, their bonds can trade at a discount. Credit investors can step in, buying that debt cheaply and collect higher yields. Again, that opportunity didn’t exist in the 2010s when very few borrowers were being forced into distress.
Who Will Lose?
For people without significant assets, the same environment looks like a permanent cost of living squeeze.
Inflation above target shows up first in everyday expenses. Food, rent, insurance and utilities absorb a larger share of wages. Wages themselves may rise but tend not to keep pace with the real increase in essentials. So, the rent and weekly grocery shop become the quiet mechanism through which the federal debt load is being managed.
At the same time, higher interest rates designed to “fight inflation” raise the cost of borrowing for households that rely on credit cards, car finance, or variable rate housing. Those households feel it on all sides: their cash loses purchasing power, they get a real-terms wage cut, and the cost of borrowing to make ends meet increases.
A Two Track Future
The US government has not formally announced that it will solve its debt problem by artificially devaluing the dollar – but it doesn’t need to.
The numbers speak for themselves. The debt is past 38 trillion and still being grown deliberately. The annual deficit is sitting near 1.8 trillion dollars with no serious plan to close it, and interest payments alone are challenging other national spending to become the highest federal expense. Meanwhile, no policy makers are showing appetite to dramatically cut spending elsewhere or increase tax across the board. Growth alone will not save the government here.
In practical terms, the only way out of this appears to be inflation. The cost is borne most directly by households that live on wages and cash, while the benefits flow to the government – who need their past promises to get cheaper in real terms – and asset holders who can collect yield, raise prices, and wait on the sidelines to buy distressed assets when others are forced to sell.
Final Thought
In short, people who live paycheck-to-paycheck are going to foot the bill here. Those with little or no wealth buffer are quietly paying down the national debt via a steady loss of purchasing power, and without ever realising what’s happening.
What we’re seeing here is an unprecedented, stealthy transfer of wealth. In a decade or two, it will be clear what happened here, but for now, everyday people are simply feeling costs increase and quality of life decrease.
Join the Conversation
Do you agree that it’s the government’s only option, or would you vote for a more direct tax hike to pay off the debt? Are you insulated from what’s coming – and where do you think it leaves society in the next 10 or 20 years? Share your thoughts below.
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Categories: Did You Know?, US News