The United States has achieved the largest national debt any nation has ever run up. It now tops $40 trillion. The USA has a GDP of $32.457 trillion (annualized based on 2Q 2026 figures). Serving the national debt now costs more than the defense budget. And thanks to the Republicans passing the big, ugly, stupid bill that slashed taxes, the budget deficit approaches $2 trillion, meaning the debt will rise by that figure each and every year unless things change. This, on its own, drives up borrowing costs because US government demand for loans is the 800-pound gorilla. The way out of this is an increase in taxation, a reduction in spending and the creation of a sovereign wealth fund to earn money for the US government.
The US finances are depressing. In FY 2025, the US government spent $7.1 trillion. Over the same period, it brought in $5.98 trillion. Despite the Department of Governmental Efficiency working as well as anything else Mr. Trump has done (which is to say not at all), a balanced budgt would require $1.12 trillion in increased revenue and reduced spending.
Servicing the national debt, according to the US Treasury, costs $931 billion. Interest rates can come down, saving $350-400 billion for every 1% interest rates fall. Inflation needs to slow to 2% (the target of the Fed) to see rates drop 1-2%. If the Fed Funds rate were at 2% instead of 3.5%, the savings would be about $550-600 billion. But the tariffs and the War against Iran make this impossible to realize.
Defense is bloated with expensive weapons systems that can be defeated with much cheaper counter measures. Shooting down a $50,000 drone with a $4 million missile is the way to economic failure. Saving money on defense runs up against the nonsensical argument that cutting spending compromises national security. That is only true if the government is procuring the right equipment. Cavalry is great but useless against armor. Retooling the defense industry does not happen overnight. Savings here will require cancellation of projects, which will upset workers and the defense industry.
Government spending on healthcare is another $845 billion. The entire US healthcare system is awful when it comes to spending and efficiency when compared to healtcare outcomes. Americans live as long as Costa Ricans and pay ten times the money. There is a solution here, which is to give everyone Medicare. Like in the UK., private insurance would continue, but it would not be the tax it is on businesses. It would be entirely optional. Meanwhile, US healthcare is 31% private cover. The US spent $5.7 trillion on healthcare last year. Private cover works out to be $1.9 trillion. Economies of scale and reduced bureaucracy would squeeze $400 billion or so out of the costs. Politically, this solution is not realistic.
Taxes address the income rather than the outflow side of things, and increasing tax revenue is not as hard as some believe. Jerry Brown raised taxes his last couple of terms as California governor by getting the people to vote for higher taxes in a referendum. The state went from deficit to surplus before Governor Brown left office. Wall Street trades more than $1 trillion in value every day. A tax on this of 0.1% would generate $1 billion a day, and with 200 trading days a year, this raises $200 billion. And if Wall Street cannot afford a tax on its trades of just 0.1%, well, they need to find other jobs.
Finally, a sovereign wealth fund has become a matter of great importance. The Trump administration has already demanded and received equity stakes in some firms. Modeled after the Norwegian Soverieng Wealth Fund (the largest in the world and with a cap on how much can be spent by the government each year), the US could have a portfolio of stocks that generate revenue currently not being earned.
No one knows when the debt bomb is going to go off, but it will. As Herb Stein said, “If something cannot go on forever, it won’t.” America needs to rein in its deficit before the explosion happens.