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.
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?
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
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.
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