The U.S. government’s debt is getting bigger and bigger. But the Americans themselves are especially affected. In the Netherlands, we can benefit from it.
How high is the debt exactly?
Currently, the U.S. government has more than $36.9 trillion in debt. That is about 32.4 trillion euros. It is increasing so rapidly that $100,000 is added every two seconds. The debt is 23 percent larger than the entire U.S. economy. For comparison: in the Netherlands, the debt is about half of our economy.
How come that debt is so high?
The U.S. government structurally spends more than it receives. “As a result, there is an annual budget deficit of 6 to 7 percent,” says ABN AMRO economist and America expert Roger Quaedvlieg. “In Europe, we already get worried if that is 3 percent.” To finance the deficit, the U.S. has incurred a lot of debt. “The debt really increased sharply in two periods: during the financial crisis and during the corona pandemic.”
Before the financial crisis erupted in 2007, the debt was ‘only’ 9 trillion dollars, or 62 percent of the U.S. economy. That percentage has doubled in less than twenty years. And in dollars, the debt has even quadrupled.
An additional problem is that interest rates have risen recently, so the U.S. is paying more and more interest on new loans. Partly because of this, one out of every 8 dollars that the U.S. spends is currently going to interest alone. Interest costs are now the largest expense of the U.S. government after social security. It also costs the government more than, for example, defense.
What are the consequences for Americans?
They feel it mainly in the interest they have to pay themselves for, for example, mortgages and loans for large expenses such as a car. “Those interest rates are derived from the interest that the state pays,” says macroeconomist Edin Mujagic, also manager at investment fund Hoofdbosch. “So Americans notice it immediately if their government has to pay a higher interest rate.”
An additional problem of the high national debt is that a negative spiral can arise. The higher debt causes interest rates to rise: investors doubt whether they will get their money back and therefore want a higher interest rate. But that causes the total debt to rise further, causing interest rates to rise even further.
In addition, due to the high debt, credit rating agency Moody’s recently lowered the credit rating of the U.S. government. This included the fact that President Donald Trump has budget plans that further increase the debt.
Is it all because of Trump then?
No, not that. The national debt has been a problem for longer. For example, credit rating agency S&P already lowered the credit rating of the U.S. in 2011, while another agency did so in 2023, when Joe Biden was president.
However, Trump’s policies do not help. Due to his budget plans, which include tax cuts, the national debt is increasing to such an extent that soon 1 out of 6 federal dollars will be spent on interest.
An additional factor is that many loans will expire soon. “And those were taken out in the past at a low interest rate. But in return, the U.S. has to take out new loans at the current higher interest rate,” Quaedvlieg explains.
Can the high debt have consequences for the rest of the world?
Yes, both positive and negative. Let’s start with the good news: the value of the euro has risen recently. This is partly because investors are investing their money more often in Europe due to doubts about Trump’s policies. The valuable euro makes American products and vacations cheaper for Europeans.
“Another advantage is that the U.S. is no longer in the short list of countries with the highest credit rating, but the Netherlands still is,” Mujagic explains. “Investors may now choose the Netherlands more often if they want to lend money to a country. This will lower the interest rate that the Dutch government has to pay and may also lower the interest rate on mortgages and other loans.”
There are also disadvantages. If American companies have to pay a higher interest rate, they may invest less. And ordinary Americans are probably more cautious about taking out loans for large expenses.
“That puts pressure on economic growth, which can cause stock prices to fall,” Mujagic explains. “This can affect the returns of Dutch pension funds, because they invest a lot of money in the U.S.” Many private individuals also invest in American stocks.
What can the U.S. do to solve this problem?
The simple answer is that the U.S. needs to reduce spending and increase income. Trump is now trying to do that too. For example, he has introduced import duties for foreign products. That should fill the treasury. In addition, he had Tesla CEO Elon Musk make significant cuts in government spending. For example, the Ministry of Education is being abolished and development organization USAID must disappear.
Yet it is questionable whether that will yield enough. For example, the independent Congressional Budget Office, a kind of audit office, expects that the deficits will only increase due to Trump’s plans.
“With a high national debt, you expect the government to do everything it can to reduce it. But the Americans are not doing that,” Mujagic states. The debt problem will therefore continue to exist for the time being.