The U.S. Debt: A House of Cards Dependent on Low Interest Rates

No, this is not Italy, Greece, or China. We are talking about the United States, the largest economy in the world, which today carries a colossal debt of $60 trillion, supported by a GDP of $20 trillion. This debt-to-GDP ratio is alarming and places the U.S. in a delicate position. The only way to avoid a catastrophic crisis is to keep interest rates low for decades. If interest rates rise, the U.S. could face a default crisis that would make the Great Recession of 2008/09 seem like a walk in the park.

The total debt of the U.S., including public, corporate, and household debt, has reached unprecedented levels. With $60 trillion in debt and a GDP of $20 trillion, the debt-to-GDP ratio stands at 300%. This means that for every dollar produced by the American economy, there are three dollars of debt. This level of indebtedness is unsustainable in the long run, especially in a scenario of rising interest rates.

The U.S. economy depends on historically low interest rates to keep this house of cards standing. With low interest rates, the cost of rolling over existing debt and taking on new loans is manageable. However, if interest rates rise significantly, the cost of servicing the debt will become unsustainable. This could lead to a wave of defaults across all sectors — government, businesses, and households.

If interest rates rise, the U.S. could face a widespread default crisis. Highly indebted companies may be unable to repay their debts, leading to mass bankruptcies. Households that depend on cheap credit to finance mortgages, cars, and education could see their debts become unpayable. And the government, already burdened with a massive public debt, could face a crisis of confidence in global markets.

The financial crisis of 2008/09 was triggered by a housing bubble and a wave of defaults in the mortgage sector. However, the total debt of the U.S. at that time was much smaller than it is today. A default crisis in a scenario of $60 trillion in debt and higher interest rates would be much more severe and difficult to contain. The effects would be felt globally, given the central role of the U.S. in the world economy.

The U.S. is walking on a tightrope. The American economy depends on low interest rates to avoid a default crisis that could shake the world. However, keeping interest rates artificially low for decades is not a sustainable solution. Eventually, the market may force a correction, whether through inflation, a crisis of confidence, or political pressures.

In the meantime, the U.S. continues to accumulate debt, betting that future economic growth and the ability to roll over debt will prevent collapse. But as history shows, houses of cards eventually fall. The question is not whether this will happen, but when. And when it happens, the entire world will feel the impact.

What do you think of this scenario? Do you believe the U.S. will be able to maintain the balance for longer, or are we on the brink of an unprecedented crisis? Share your thoughts!