The United States is grappling with an unprecedented increase in national debt, a situation that poses a serious threat to its economic stability and long-term growth. Since the conclusion of the 2020 fiscal year, the national debt has surged by over $7.3 trillion. This increase is more than the entire national debt accumulated during the first 228 years of the country’s existence. The implications of such rapid debt accumulation are profound, affecting every facet of the economy and the financial well-being of Americans.

High levels of government debt can hinder economic growth, expose weaknesses in financial systems, and reduce a country’s capacity to address future emergencies effectively. The U.S. now faces a difficult decision on how to manage its escalating debt: either default or resort to inflation.

It seems the U.S. is already moving towards the inflationary route. The country’s massive spending, even after the peak of COVID-19 restrictions in 2021 and 2022, will have long-term effects of such fiscal policies. Although these spending measures were aimed at stimulating economic recovery, they also drove up inflation.

Despite previous government shutdowns that were tools to reduce spending, defaulting on the national debt means the government fails to meet its debt payments, which could have disastrous global consequences for a major economy like the United States. A default could lead to the collapse of U.S. and international financial institutions, triggering a severe global recession and triggering unemployment. 

Alternatively, the U.S. could attempt to reduce its debt burden through inflation, which involves increasing the money supply to lower the real value of debt. While this might appear to be a less extreme measure than default, it carries significant downsides. Inflation erodes savings, especially harming retirees and those on fixed incomes. As money loses its value, the cost of living rises, placing a heavier burden on middle- and working-class families as they struggle to afford basic necessities. The overall economic effect includes reduced spending on non-essential goods and services, which could slow economic growth and potentially lead to stagflation—a situation where economic growth stagnates while inflation persists. This scenario would result in a lower standard of living for most people, except for the very wealthy.

Regretfully, Washington and the Federal Reserve has always chosen inflation and passed the costs to the middle class and poor, making everyone poorer. By 2034, in ten years, our debt is expected to be at 50 trillion at current pace.