A poster at a Washington bus shelter shows the U.S. national debt in May, 2023.MANDEL NGAN/AFP/Getty Images
U.S. President Donald Trump managed to set a record for the longest State of the Union speech last month, while saying next to nothing about the state of U.S. public finances.
Yet, few people took him to task for it. The state of denial about the skyrocketing U.S. federal debt is a rare bipartisan consensus in Washington these days.
To be sure, a small group of Republican and Democratic House of Representatives members sponsored a bill in January proposing an upper limit on the federal deficit of 3 per cent of gross domestic product. But it has gone nowhere, with most members of Congress avoiding any talk of raising taxes or cutting spending before November’s midterm elections.
And so, the U.S. federal deficit is hovering at around 5.8 per cent of GDP, an historically high level outside of a recession or pandemic. Based on current tax and spending policies, the level of federal debt held by the public will surpass 100 per cent of GDP this year, and rise to 120 per cent by 2036, exceeding the previous high of 106 per cent reached in 1946.
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These figures are from the latest 10-year outlook by the Congressional Budget Office, the U.S. equivalent of Canada’s Parliamentary Budget Officer. The CBO projects that interest costs alone on the U.S. federal debt, which already exceed defence spending, will double from about US$1-trillion this year to US$2.14-trillion a decade from now.
Mr. Trump continues to indulge in the fantasy that higher tariffs will solve everything. “[A]s time goes by, I believe tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax,” he said in this SOTU address.
He also announced a “war on fraud” headed by Vice-President JD Vance, vowing that his second-in-command will “find enough of that fraud [that] we will actually have a balanced budget overnight.”
We all know that is not going to happen. The CBO projects the deficit, set to reach US$1.9-trillion this year, will rise to US$3.1-trillion in 2036.
Which raises the question of how much longer the United States, and other highly indebted developed countries, can continue to kick the can down the road before tackling their unsustainable fiscal policies.
Central government debt among the 38 advanced industrial countries belonging to the Organization of Economic Cooperation and Development is projected to rise to 85 per cent of GDP in 2026, or fully 39 percentage points higher than it stood in 2007, the OECD said this week in its annual Global Debt Report.
While most governments moved to reduce debt levels after the 2008 financial crisis and subsequent recession, no similar fiscal consolidation exercise has occurred since the COVID-19 pandemic, which saw debt levels spike. Much of that spending was facilitated by central banks, which bought up government bonds in an exercise known as quantitative easing.
One result of all that central-bank bond-buying was higher inflation, leading to higher long-term interest rates. That has pushed up borrowing costs. The median yield on 30-year government bonds in the OECD surpassed 4 per cent in 2025. Interest costs are eating up more and more tax revenue.
What’s more, as central banks reduce their holdings of government bonds, in a process known as quantitative tightening, governments are relying more on “price-sensitive” investors such as hedge funds, which are often highly leveraged themselves, to finance their deficits. That is creating new risks.
“On the one hand, these investors bring much-needed liquidity and diversity to global debt markets,” the OECD’s Carmine Di Noia wrote in the report. “On the other hand, it may render issuers more exposed to shocks and greater price movements, calling into question the stability of the world’s US$109-trillion sovereign and corporate bond markets.”
The outbreak of a new war in the Middle East sent U.S. Treasury bond yields rising this week. No one knows what future shocks await the global economy amid rising geopolitical and financial risks that include trade wars, regional conflicts and asset bubbles.
The prudent course in such circumstances would involve deleveraging by governments, to create fiscal room to respond to future crises. That is not happening.
“Global public debt climbed to 93.9 per cent of GDP in 2025 and is on track to breach 100 per cent by 2028 – levels never seen in peacetime – marking a turning point for economic policy and politics,” International Monetary Fund officials Era Dabla-Norris and Rodrigo Valdés wrote in recent analysis.
“Beyond a certain point, more borrowing forces painful decisions – through austerity, inflation, financial repression, or even default. The question becomes unavoidable: With limited fiscal space, what will be the trade-offs, and who will bear the cost?”
Like it or not, we may soon find out.