Can the United States really go bankrupt?

Donald Trumps account One Big, Beautiful Bill, The Mega Act with burden lighting that is being negotiated in the US Senate these days is scaring investors worldwide. The expected extra costs of the law are this week by the Congressional Budget Office calculated on $ 2,400 billion For the next ten years. That amount comes on top of the already high annual financing shortages that the US has had almost a quarter of a century.

Even Wall Street veterans are shocked. « If we find no way to grow (the economy) by 3 percent per year, we collapse the abyss, » said Larry Fink, boss of asset manager Blackrock, this week at a meeting in New York. And founder Ken Griffin of Hedgefonds Citadel added: « You cannot have any deficits of 6 or 7 percent, with full employment, after years of growth. That is simply budgetary irresponsible. »

Investors know: If you are forced to deny your own bankruptcy, you are not florissant for it

The debate about the sustainability of the American debt forced the Finance Minister Scott Bessent last week to explain: « The United States will not go bankrupt, that will never happen. » Bessent will have intended to defuse panic, but any positive effect on the US government bonds or the course of the dollar was not forthcoming. Investors know: If you are forced to deny your own bankruptcy, you are not really florissant for it.

Immense debt

And that is also true: the costs of the ‘OBBB’, as Trump’s law is already mentioned, increase the already immense debt of the US. The counter is at more than 36,000 billion dollars (31,500 billion euros), or 120 percent of the US gross domestic product. Since Trump with his trade war, the unrest as expressed by Fink and Griffin started into a falling value of the dollar and increasing interest rates on US government bonds. The interest guests who have to pay the US on their debts are already higher than what the US spend on the annual basis on the Ministry of Defense. This cannot go well for long, is the idea of ​​investors and economists.

But how likely is a bankruptcy of the US? And what does that mean at all, going bankrupt? First that last question: economists speak of a bankruptcy (a default In English) if a country can no longer meet its payment obligations. The interest and repayment can no longer be met, and with that the country remains ‘in default’. That was the case with Greece during the euro crisis, and Ecuador and Argentina have been declared bankrupt several times in recent decades. With the help of the International Monetary Fund, a country is helped on top: a strict reform program and creditors are in such a case empty -handed, or have to accept a substantial discount on the repayment of their loans (a so -called haircut).

The Netherlands went for First and for the last time bankrupt in 1810when after a money -wasting war against the French, interest rates stopped and pay off the debts. The creditors of the Netherlands eventually only received a third of the original loan, and only in 1845.

A country ends up in the corner of defaulters when the costs for borrowing money starts to run out of the spots. A national debt is made up of an enormous amount of loose loans with different maturities and different interest rates. Every week there is a package of loans that must be repaid. That money must be borrowed again on the capital markets because the country in question needs the money to finance its own expenses.

If confidence in the reliability of a country decreases, and the risk of default grows, this translates into higher interest rates for new loans. Maintaining the debt therefore becomes more expensive.

What exactly is the reason for investors to start a country distrust is hard to determine exactly. The amount of the national debt as a percentage of the economy plays a role, just like the annual deficits on the budget. But also more general cases such as the reliability of a government, or the state of the rule of law.

In particular, the latter two aspects are quickly eroding in the US under Trump. The throw with import duties, the increasingly discrimination of companies that come from abroad either produce there, the randomness of the government: it all contributes to growing doubts with investors whether their money in the US is safe. And anyone who wants to keep investing there, requires a higher risk premium in the form of interest.

You cannot have any deficits of 6 or 7 percent, after years of growth. That is just budgetary irresponsible

This makes it unthinkable: the dollar and the US government bonds, since the Treaty of Bretton Woods in 1944 a safe haven for investors in times of economic unrest, are losing status. That in itself can already contribute to a greater risk of default because the US can end up in the vicious circle of increasingly expensive Herbelenen. In particular, the interest rates on government bonds with a very long duration are coming at worrying levels. And when interest rates are on government bonds, interest rates on loans and mortgages will also increase. That inhibits economic growth.

Reputation

Economist Paul Krugman, visiting the Netherlands a few weeks ago, said that he would have dismissed a possible bankruptcy of the US as ridiculous a year ago, but that he would no longer say that so firmly. He is very concerned that the government will knowingly and know the US reputation as a neat repayer.

However, Krugman also pointed out that the US has high debts and are now confronted with rising interest rates, but that the country is also immensely rich and has relatively low taxes. So there is enough room to increase taxes in the event of an emergency to raise enough money to pay interests and repayment of the debt, says Krugman. Economically, there is – for the time being – no reason for bankruptcy care.

The big question seems to be: do the US still want to pay off their debts? The much-discussed dollar plan From Trumps economic adviser Stephen Miran in any case suggests that the dollar and the US government bonds can be used as an economic weapon to punish other countries for ‘unfair’ commercial practices. For this, the US would like to break open unilateral contracts of existing government loans to either lower the interest on it or to extend the duration. Technically, that would qualify as a default (bankruptcy).

It would fit in Trumps politics to lay down the bill for his burden reduction at abroad and default on debts abroad will certainly touch abroad. In December 2024, foreigners owned 30 percent of the US national debt: Japan is America’s greatest creditor, followed by China and the United Kingdom. The interest on the debt paid to foreigners in 2024 was 230.6 billion dollars.

That seems like a powerful stick to hit abroad. But the vast majority of the American debt is in domestic hands. If the US is considering default, the interest on new loans will rise. Who still wants to borrow money to the US?

The bill for this ends up with the US government and therefore with the American citizens. At the next polls, they will have to show what they think of this policy. Until then, it is mainly the financial markets that try to limit the risks surrounding the US national debt in word and deed. Trump was susceptible to that so far. Go bankrupt for business, As Trump experienced six timesis one thing. Putting your entire country at stake is – even for him – of a completely different order.

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