The United States is approaching a historic and potentially dangerous financial threshold, with national debt now nearing $38 trillion — roughly equivalent to 100% of the nation’s Gross Domestic Product (GDP). According to a newly released warning from the Committee for a Responsible Federal Budget (CRFB), the debt is on track to grow faster than the U.S. economy, putting the country at risk of multiple overlapping fiscal crises.
In its latest report, titled “What Would a Fiscal Crisis Look Like?”, the nonpartisan fiscal watchdog paints a sobering picture of America’s financial future. The report cautions that unless policymakers take swift and strategic action, the nation could face one or more of six distinct types of crises, ranging from inflation and currency instability to outright default.
“The United States is deeply indebted, and its finances are on an unsustainable long-term trajectory,” the CRFB stated, warning that “some form of crisis is almost inevitable” without a decisive policy course correction.
The group emphasized the urgent need for a “thoughtful pro-growth deficit reduction package”, arguing that failure to act could trigger disruptions that would lower living standards in the U.S. and across the world.
The Most Severe Risk: An ‘Austerity Crisis’
Among the most alarming scenarios outlined in the report is the possibility of an Austerity Crisis — a situation in which investor confidence collapses, forcing lawmakers to impose sudden and extreme spending cuts or tax increases to stabilize financial markets.
While deficit reduction is necessary in the long run, the CRFB warned that implementing austerity too quickly — especially during an economic downturn — could result in the worst economic contraction in nearly a century.
The report estimates that a fiscal tightening equivalent to 5% of GDP could reverse economic growth into a 3% contraction, triggering a recession deeper than any experienced in the post–World War II era. Since 1950, U.S. economic output has never shrunk by more than 2% year over year, underscoring the unprecedented nature of such a scenario.
“Rapid austerity in a weak economy could create a self-reinforcing depression,” the report cautioned, noting that unemployment could surge while businesses collapse at scale.
As a historical parallel, the CRFB cited Greece’s debt crisis in the 2010s, when soaring borrowing costs forced the government to impose strict austerity measures that devastated the economy and sent unemployment to record highs. Similar, though less severe, outcomes occurred in Portugal and Spain during the same period.
Former Greek Finance Minister Yanis Varoufakis, reflecting on the long-term consequences of austerity, warned of the emergence of a “depressed society” and even a form of “technofeudalism” — a system in which economic stagnation reshapes social and political power.
Five Additional Crisis Scenarios
Beyond austerity, the CRFB outlined five other possible crisis paths if debt continues rising unchecked:
1. Financial Crisis
A sudden loss of confidence in U.S. Treasury bonds could cause interest rates to spike, sharply reducing bond values and destabilizing banks and financial institutions. The report cited the 2023 collapse of Silicon Valley Bank as a small-scale preview of how rising rates can trigger systemic financial stress.
2. Inflation Crisis
To avoid default or financial collapse, the Federal Reserve could be pressured to print money to fund government debt, potentially triggering runaway inflation. Such a move could erode household savings and reduce purchasing power, echoing historical cases like Argentina or Germany’s Weimar-era hyperinflation.
Hedge fund billionaire Ray Dalio has repeatedly warned that the U.S. may face a dangerous dilemma:
“Do you print money, or do you let a debt crisis happen?”
3. Currency Crisis
Excessive borrowing could weaken confidence in the U.S. dollar, leading to a sharp depreciation and threatening its status as the world’s primary reserve currency. A weaker dollar would make imports more expensive and reduce U.S. geopolitical influence.
4. Default Crisis
While the CRFB described a U.S. default as “very unlikely,” it warned that failure to meet obligations on roughly $31 trillion in publicly held debt would be catastrophic, freezing global credit markets and potentially triggering a worldwide recession.
5. Gradual Crisis
Perhaps the most subtle — yet dangerous — scenario is a slow economic decline in which rising debt crowds out private investment, suppressing growth over decades. According to Congressional Budget Office (CBO) projections, real income per person could be 8% lower by 2050 under this trajectory.
The CRFB pointed to Japan as a cautionary example — a nation that has sustained high debt for decades without a sudden collapse, but with anemic economic growth averaging just 0.5% per year over the past two decades.
Warning Signs and Potential Triggers
The report noted that a crisis may not stem from a single tipping point. Instead, it could be triggered by factors such as:
- A recession
- A failed or weak Treasury bond auction
- A breach of the federal debt limit
- A sudden shift in investor confidence
Meanwhile, the fiscal burden continues to grow. Interest payments on U.S. debt reached nearly $1 trillion last year, consuming about 18% of total federal revenue — roughly equal to the nation’s entire Medicare budget.
“With debt at 100% of GDP, the U.S. has less fiscal space than at any time in history to respond to war, pandemics, or economic shocks,” the CRFB warned.
Conclusion: A Narrow Window to Act
The report concludes that while the exact timing of a fiscal crisis is impossible to predict, the trajectory is increasingly dangerous. Without meaningful reform, the U.S. risks entering an era of financial instability, weakened global influence, and slower long-term prosperity.
