US debt is getting out of control. Amid the fog of war, it would have been easy to overlook the latest deficit number coming out of Washington. According to figures from the Treasury Department, the US national debt is now more than $39 trillion. It is only five months since it went past $38 trillion.
US debt has doubled from only $19 trillion when Donald Trump was sworn in for his first term as president. The overall debt-to-GDP ratio is now more than 124%, and by the end of 2026, interest payments will be more than $1 trillion a year. The deficit is rising at a relentless pace and the Treasury is issuing more and more debt to stay afloat.
The US debt pile is going to get a lot bigger over the next few years. Firstly, the Iran war is going to prove hugely expensive. According to the Pentagon, the first six days alone cost $11 billion and the total bill is already more than $40 billion and going up all the time. The hi-tech missiles and bombs the US deploys to such lethal effect are very expensive and the arsenals will have to be restocked soon. If the war goes on, the bill will keep rising – and that is before looking at aid to rebuild a shattered country if the regime falls.
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Tariffs won't reduce US debt
Secondly, the revenue from tariffs looks more and more uncertain. Putting levies on everything America imports was always going to be a problem for the economy, but at least it brought in significant new revenue. It was, in effect, a tax, and given the size of the deficit, perhaps that was just what the US needed. The federal government collected $280 billion in tariff revenue in 2025, triple the figure for 2024, and the levies were only fully implemented in September. In March, however, the US Supreme Court ruled that the way they were imposed was illegal and exceeded the powers of the presidency. Even worse, the ruling may mean the revenue has to be repaid. The result? We can forget about that extra money reducing US debt, and the repayments, if that is what happens, will have to be paid with yet more borrowing.
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Thirdly, the Department of Government Efficiency (Doge), the ruthless cost-cutting machine established by Elon Musk to take a chainsaw to government spending, has achieved very little. Musk talked grandly of cutting hundreds of billions from the state machine and hired a bunch of whizz-kids to make it happen. As it turned out, however, it turned out to be a lot harder than cutting costs at Twitter (now X) or one of his other companies. Doge did have some success: it cut the number of Federal employees by 9%, the largest fall since the demobilisation after the end of the Korean War in the 1950s. Even so, the unit has now been effectively disbanded as a single entity.
In effect, the Trump administration has given up on the attempt to slash waste and inefficiency. It proved to be too hard and little progress was made. Indeed, with the watchdog out of the way, all the staff who were laid off will probably be quietly restored to the payroll.
Finally, the mid-term elections due later this year will be terrible for the Republicans. Trump was already falling in the opinion polls, and the war in Iran has made his ratings worse. If there is a deadlock between Congress and the White House, we can forget about any controls on spending, on tax rises, or any serious effort to balance the books. There may be periodic shutdowns as the two sides fail to agree on a budget, but that won't reduce spending – it will just make the state even less effective. In reality, the political machine has lost the ability to put any meaningful restraints on spending.
True, the US economy remains strong, certainly compared with a stagnant Europe. But the maths can't be ignored forever. The last president to balance the books was Bill Clinton back in the 1990s. We don't know yet how a fiscal crisis will play out. There may be a surge in inflation, tolerated by the Federal Reserve, to whittle it away in real terms. The dollar may collapse as investors lose faith and switch to alternative currencies, perhaps including the newly launched digital yuan, or else gold or bitcoin. Or there may be a long shutdown as the federal government simply runs out of cash. We will find out over the next few years. For investors the important point is surely this: the dollar is not nearly as strong as it looks. Sooner or later there will be a crash – and the only smart move is to diversify before it happens.
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