The Weight of Debt: A Looming Crisis for the Next President
Donald Trump’s experience with debt is well-documented, but nothing could have prepared him for the staggering national debt he’ll inherit as the 47th president. As a real estate developer, Trump relied heavily on borrowed money to fund projects, but his troubles paying back debts led to six business bankruptcies. However, the public debt he’ll face is a completely different beast.
A National Debt Crisis
The national debt will exceed $36 trillion when Trump takes office, up from $20 trillion when he started his first term in 2017. As a percentage of GDP, debt held by the public has jumped from 75% in 2017 to 96% today. These numbers will only continue to worsen, and refinancing or bankruptcy are not viable options for the federal government.
Market Warning Signs
Since last September, the Federal Reserve has cut short-term interest rates by a full percentage point, yet long-term rates have risen by a full point. This unusual trend suggests that the market is sending a warning signal. One possible factor behind rising long-term rates is the endless borrowing by the Treasury Department, which could lead to higher borrowing costs for individuals and businesses alike.
Fiscal Follies Ahead
This debt pinch will impact Trump’s agenda in three significant ways. Firstly, the government has hit its borrowing limit, which means Congress will need to raise the limit by late spring or early summer. This could lead to a contentious battle, with some GOP budget hawks threatening a US default. Secondly, a debt ceiling showdown could trigger another downgrade of US debt, further eroding market confidence. Finally, the reluctance to extend tax cuts or pass legislation that would further inflate the national debt could hinder Trump’s ability to implement his policies.
A Daunting Task Ahead
Renewing the tax cuts for another 10 years would add $5 trillion to the debt, and there’s limited room for cost-cutting without alienating key interest groups. While identifying potential cost savings might be possible, implementing them would require deeply unpopular congressional legislation. As Trump navigates this treacherous landscape, one thing is certain – the unprecedented national debt will become a pressing issue for his successor to tackle.
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