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The Growing Concern of U.S. Debt: A Ticking Time Bomb

Writer's picture: Emil GasparyanEmil Gasparyan

An Escalating Debt Crisis

The U.S. national debt is skyrocketing, with no clear plan for repayment in sight. The government continues to borrow money at an alarming rate, primarily by selling bonds to the Federal Reserve and other investors. This borrowing cycle has become a critical issue, as it shows no signs of slowing down. Each time a bond reaches its maturity, the U.S. government simply issues new bonds to cover the old debt, effectively rolling over the debt instead of reducing it.


Inflation: A Double-Edged Sword

In an attempt to manage the growing debt, the government has often relied on inflation to reduce the real value of its obligations. By inflating away the debt, the government hopes that the money it repays will be worth less than the money it borrowed. However, this strategy comes with significant risks. Rising inflation has forced the Federal Reserve to hike interest rates in an effort to cool down the economy. This, in turn, has led to higher interest rates on newly issued bonds, making it more expensive for the government to borrow money.


The High Cost of Borrowing

As inflation drives interest rates higher, the cost of servicing the U.S. debt increases. Bonds that were once sold at lower interest rates are now being replaced by bonds with much higher rates, making them more expensive for the government to repay. The higher interest rates also make U.S. bonds less attractive to investors, who now demand higher returns for the increased risk of holding U.S. debt. This could lead to a vicious cycle where the government needs to borrow even more money to cover the rising interest costs, further exacerbating the debt problem.


A Looming Financial Threat

The continuous issuance of high-interest bonds is unsustainable in the long term. As the debt grows, so does the portion of the federal budget dedicated to interest payments, leaving less room for other critical expenditures. If this trend continues, the U.S. could face a financial crisis, with the debt burden becoming too heavy to manage.


Conclusion

The U.S. debt situation is a ticking time bomb. With no concrete plan for repayment and rising costs of borrowing due to inflation, the government’s strategy of rolling over debt by issuing new bonds is increasingly precarious. Without significant fiscal reforms, the U.S. may find itself facing severe economic consequences in the near future.

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