The United States’ national debt has reached an unprecedented milestone, hitting 100% of gross domestic product (GDP) and putting the nation on track to trigger six different types of financial crises, according to an ominous new warning issued Thursday by the Committee for a Responsible Federal Budget (CRFB).
With the national debt now effectively equal to the size of the entire US economy, the nonpartisan watchdog’s latest report, “What Does a Financial Crisis Look Like?” A dangerous future lays ahead. The report states, “If the national debt continues to grow faster than the economy, the country could eventually experience a financial crisis, an inflationary crisis, an austerity crisis, a currency crisis, a default crisis, a sequential crisis, or some combination of crises. Any of these would cause major disruptions and a major decline in the standard of living of the American people.”
The report warned that unless policymakers implement a “thoughtful pro-growth deficit reduction package,” disaster could follow. “The United States is deeply in debt, and its finances are on an unsustainable long-term path,” the report concluded. While it is “impossible” to know when a disaster will strike, without course correction “a crisis of some kind is almost inevitable”, the CRFB said.
Among the most dire scenarios in detail is the “clothing crisis”. In this likely future, a loss of market confidence will force lawmakers to panic control emergency, large spending cuts or tax increases. Despite the need to reduce the deficit, the CRFB warned that the rapid implementation of such austerity measures in a weak economy could trigger the worst economic contraction in nearly a century.
The report estimates that a fiscal contraction equal to 5% of GDP could reverse modest growth into a 3% economic contraction. It would mark the deepest recession of any recorded in the post-war era, with US output not falling by more than 2% annually since the 1950s. Such a scenario would increase unemployment and increase the likelihood of business closures, creating a self-reinforcing depression.
As an example of such an austerity crisis, the CRFB pointed to Greece during the Great Recession of 2010, when economic weakness led to an “unsustainable spike” in borrowing and bond yields, which crippled the economy and pushed the unemployment rate to record levels. Portugal and Spain had similar, less severe crises during this period. Yannis Varoufakis, the former finance minister of Greece who opposed these austerity measures and resigned in protest, spoke to it. fate About the strange mutation of the modern economy into a world with low aggregate demand in February 2024, warning of the onset of “apathetic society” and “technological feudalism”.
Apart from forced austerity, the watchdog identified five other crisis scenarios:
1. Economic Crisis: If investors lose faith in the US Treasury market, interest rates could rise uncontrollably. This would devalue existing bonds, potentially triggering cascading failures in banks and financial institutions.
The report cited the 2023 collapse of Silicon Valley banks as a “small-scale” preview of how rapid rate hikes could destabilize the banking sector. More broadly, though, it points to 2007 as a famous example of the financial crisis, driven by the collapse of the ratings of subprime mortgage-backed securities, leading to a global financial crisis where hundreds of financial institutions closed, housing prices fell by a quarter, output fell by 4% and the economy shrank by 4%, and by 1%. Recovery.
“Fiscal irresponsibility has contributed to financial crises several times around the world, including Argentina in 1998, Greece and other European countries in 2009, and Brazil in 2016,” the CRFB noted, warning that while financial markets appear capable of sustaining current levels of U.S. debt, markets are rarely predictable. And investor confidence can change quickly.
2. Inflation Crisis: To avoid defaults or bank failures, the Federal Reserve can be pressured to “monetize” debt—print money to buy Treasury bonds. This can lead to rising inflation, reducing savings and purchasing power, similar to historic crises in Argentina or the Weimar Republic.
Hedge fund billionaire Ray Dalio has been warning consistently, even in conversations this week fate From Davos, Switzerland, about the risks of monetizing America’s debt. When it comes to the U.S. economy, Dalio has long been an outspoken critic of the rapidly growing national debt, and told Fortune that he now believes the crisis is so great that we are dealing with a “disintegration of the monetary system” and is facing a stark choice: “Do you print money or do you let the debt crisis happen?”
3. Currency Crisis: Reckless fiscal policy could lead to a sudden devaluation of the US dollar, undermining its position as the world’s leading reserve currency. A weak dollar will reduce US geopolitical power and make imports more expensive.
4. Default Crisis: Although considered “highly unlikely,” failure to pay interest or principal on the roughly $31 trillion in debt held by the public would be “catastrophic.” A default would freeze global credit markets, crash stock markets, and possibly plunge the world into a deep recession.
Many countries have defaulted on their debt throughout history, including Mexico, Brazil, Peru and Argentina in Latin America, and Russia in the late 1990s. Argentina is still facing the consequences of its default, taking a controversial $20 billion credit from the U.S. through 2025, though it will soon pay it back in full, according to Treasury Secretary Scott Besant.
5. Gradual Crisis: Perhaps the most insidious scenario is a slow decline where no acute event occurs. Instead, high debt crowds out investment, slowing growth for decades. Congressional Budget Office (CBO) models suggest that this projection could leave real income per capita 8% lower by 2050 than it would otherwise be.
Japan is a classic example of a gradual crisis, CRFB notes that it has maintained extremely high levels of debt for several decades, surviving acute crises but real GDP has only grown by 10% (0.5% per year) over the past two decades. Société Générale global strategist Albert Edwards, a self-described “permabear,” has long advocated an “Ice Age” theory of financial markets in which every developed country suffers the same fate as Japan. Edwards said fate In November 2025, the Ice Age theory held that until 25 years earlier, when the dotcom bubble burst, the link between the economy and asset prices was “broken”, as the Fed began to “throw money” into recession and low growth through quantitative easing. It’s actually a 25-year period that the CRFB warns is building towards some kind of inevitable crisis. The CRFB noted that Western European economies such as France and the UK show signs of a gradual crisis, with slow growth and inflexible fiscal policy, driven by high borrowing rates.
The report noted that a crisis does not require a single “tipping point” but can be triggered by a variety of triggers, including a recession, a “poor” Treasury auction in which demand for U.S. debt falls, or a breach of the debt ceiling.
This warning came after the financial situation worsened. Interest costs on the debt rose to nearly $1 trillion last year, consuming about 18% of federal revenue — an amount comparable to the entire Medicare budget. “With debt at 100% of GDP,” the report argued, “the U.S. has a lower fiscal position than at any time in history in the event of another war, pandemic or recession.”
This story was originally featured on Fortune.com
