Why the US does need to solve its budget crisis - but the US economy remains very strong on all projections and many solutions + shorter term ways to keep going if nothing is done by 2030

I’m often asked why is Trump cutting so much government spending? What was the actual point in DOGE? Many I help don't know the answer to it and are baffled by what’s going on

• Trump hasn't done a great job of explaining WHY he is doing it

• nor does the mainstream media they tend to assume everyone knows already but many I help don't

• it helps you understand what is going on.

It’s partly because of far right fiscal conservatism - the idea that the government should be greatly reduced in its cost and capability. It is not about making the US less capable - instead they think that by doing this they can stimulate private companies to take the place of the government in many areas.

However Trump is far more motivated by immediate budget concerns. The US has had its worst debt projection ever in recent times. It has to do something about its debt at some point in the next decade.

Trump is trying to address this by cutting public spending and he also thinks tariffs help. That is an unconventional view with pretty much all economists saying that the broad brush tariffs he uses won’t help though in some situations targetted tariffs can help:

Trump does tariffs he thinks will benefit the US economy - if economists are right he'll soon find they don't - and likely to reverse course - can also be stopped in the courts

He is also increasing spending on border security, wants to increase funding on Defence, and he has extended tax cuts that mainly benefit the wealthier people which adds $4 trillion to the debt over the next decade.

So he faces a need to drastically cut expenditure while at the same time has these election promises that will increase the amount his government has to spend.

That is why he is looking for ways to reduce spending rapidly and drastically.

There are many ways to solve these problems and a Democrat president or indeed a moderate Republican would use very different methods from the ones that Trump is using.

That is why he faces obstacles passing his bills in Congress - everyone agrees on the need to do something about the national debt but they have very strong disagreements about HOW to do it.

To a certain extent he is just punting the problem to after the mid-terms with his $5 trillion debt limit increase.

But please don’t be scared, there isn’t any risk of the US becoming a low or middle income country. There are many ways to solve this issue. It is not an immediate problem but over a period of years starting around the end of Trump’s term it will become more and more important to solve it.

If it isn’t solved, then it would gradually over several decades:

• reduce GDP

• increase unemployment

• reduce wages

• increase mortgage rates

• reduce the available investment for new businesses as investors favour buying Federal debt instead of business debt (called "Crowding out".

But there are numerous solutions, including:

• increase taxes,

• gradually increase retirement age by a few years
  [this makes a huge difference because a lot of the government outlay is on pensions]

• add in VAT

• encourage immigration (which increases revenue as they tend to be young and pay more in tax than the state spends on looking after them)

Most of those are ones that a Republican isn’t keen to support.

Or he can

• reduce spending - there the big one is the defence spending if he can reduce that it would make a huge difference but he wants to increase it - so that is why he is looking everywhere else for funding to cut.

• increase the debt as needed and punt the problem down for another year or two

So far he hasn’t done much to reduce spending. DOGE doesn’t have long term effects unless he can consolidate their cuts with rescission (cancelling funds from Congress)

Trump has passed one rescission bill for USAID / PBS / NPR but it’s a tiny fraction of what he needs.

At the end of this blog post I talk about how longer term later this century there are reasons to think the world could have a peace dividend. If the US is able to reduce its defence spending then that is another way to make a big different to the debt. But it’s not a solution right now except for the liberal left, such as Bernie Sanders. It may be a more widely acceptable possibility later this century because the surges in renewables will eventually mean the world has almost no oil exports and a lot of the military spending at present is used to protect oil exports.

Then if Hans Blix is right then what we see in the Middle East and Ukraine and a few other places are amongst the last of the territorial wars as the world becomes more and more consolidated with peace agreements and with large security alliances between countries. That also would lead to a huge peace dividend.

But meanwhile the US does have a major issue over the next decade or so that it needs to find a solution to.

However for ordinary folk in the USA who worry about the economy - there is NO RISK of it turning into a low economy or even a middle income economy like Mexico.

The USA will remain one of the most powerful economies and its citizens with amongst the highest per capita GDP in the world whatever happens.

This is a high economy country problem. It’s a serious problem but a high economy like the US has the resources and the resilience in plenty to resolve it. Its challenge is to find the most politically acceptable way to solve it

This is very different from a low economy problem of similar seriousness which can lead to widespread malnutrition, starvation, lack of access to health care at all and other far more serious issues. I don’t mean to trivialize it, it is a serious issue and people can be and are impacted in many ways sometimes serious on the individual level - but it can never turn the USA into a middle income country like Mexico neer mind a low income country.

https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~KOR~CHN~IND~OWID_EU27~WB_SSA~WB_LAC

It’s only exceeded by a few smaller countries such as Luxembourg, Singapore, Macao and Switzerland (and a few others not shown on this graphic)

With the figures for 2023 overlaid:

https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~KOR~CHN~IND~OWID_EU27~WB_SSA~WB_LAC~JPN~LUX~SGP~MAC~CHE

And this shows the comparison with its two neighbours, and with Latin America

https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&country=USA~WB_LAC~CAN~MEX

Genuine budget concerns - the US debt projection for the next few years is far worse in 2025 than in 2023 according to the Congressional Budget Office

I did earlier posts here that are sadly out of date, using the 2023 projection.

Just two years later, in 2025 the projection for the future is much worse so they need to solve it urgently.

These are the blog posts I wrote based on the economic projections in 2023:

Also

Why the US's national debt overwhelmingly benefits Americans - and the US can never default on its debt - only needs to control it in the 2030s - with many solutions

I was relying on the 2023 CBO projection in the originals of those blog posts written a couple of years ago or so and just copied them into my substack.

Back then the Congressional Budget Office was giving pluses and minuses of increasing debt and saw it as something that needs to be fixed in the longer term.

This is what the CBO wrote in 2023 about pluses of increasing debt:

QUOTE STARTS

Nevertheless, policies that drive up debt by increasing spending or reducing revenues can benefit people and provide support to the economy, especially during challenging times. And federal investment—including investment financed by deficits—can boost private-sector productivity and output (although that increased output would only partially mitigate the adverse fiscal consequences of increased federal borrowing).

Higher debt itself can also have beneficial consequences. Higher interest rates on Treasury securities can help workers save for retirement by increasing the return they can earn on those assets. Similarly, higher interest rates on Treasury securities can help businesses by increasing their return on a liquid asset that can be used to cover payroll and other expenses (though their borrowing costs would be higher, and an increase in the rate of return on newly issued Treasury securities would reduce the value of existing securities of the same maturity).

https://www.cbo.gov/publication/59331

However the Congressional Budget Office now sees a very different picture.

The 2025 projection has a message of some urgency to fix the budget in some way.

The 2025 projection ends

QUOTE STARTS

Ultimately, high debt and deficits carry significant risks and threats to the economy and the nation. They hinder economic growth by crowding out investments, pushing up interest rates, straining the federal budget through rising interest payments, creating geopolitical challenges and risks, making the response to new emergencies more challenging, imposing burdens on future generations, and increasing the risk of a fiscal crisis.

To address the nation’s long-term budgetary challenges, policymakers should restore solvency to Social Security and other trust funds, lower health care costs, reduce spending, cut tax breaks and raise revenue, promote stronger economic growth, and offset any new initiatives. They should not add further to the debt by enacting or extending tax cuts and spending without offsets. Doing so could spark a debt spiral and impose significant costs on current and future generations. https://www.crfb.org/papers/analysis-cbos-march-2025-long-term-budget-outlook

This is NOT about any sudden issue in weeks or months.

It needs to be solved over the timescale of the next few years but not by the end of this year.

Need to deal with the increasing debt within a few years - but most ways of doing that are not acceptable to Republicans

Of course Trump could solve a lot of his problems by just not extending the tax cuts any more which would save $4 trillion in the next decade. https://bipartisanpolicy.org/blog/the-new-cost-for-2025-tax-cut-extensions-4-trillion/ these tax cuts mainly affect higher income people in the USA.

There are many other ways to sort out the debt issue. Trump's problem is that none of them are acceptable to the Republicans.

Trump could increase income if he:

• increase taxes,

• increase retirement age

• add in VAT

• encourage immigration (which increases revenue as they tend to be young and pay more in tax than the state spends on looking after them)

Or he can

• reduce defence spending [Defence spending is discretionary so that's not in this bill]

• increase the debt as needed and punt the problem down for another year or two

None of those are things he wants to do.

With the Big Bill he increased the debt by $5 trillion.

I find different ideas about how far this shifts the debt limit into the future

• Beyond the midterms in 2026 (Bloomberg)
  

QUOTE Republicans estimate that the budget blueprint they approved July 3 will allow them to push the next crunch point for the debt ceiling, now set at $41.1 trillion, beyond the 2026 midterm elections.

https://www.bloomberg.com/explainers/debt-ceiling-explained

Through to 2029-30 (TIAA based on CBO)

QUOTE As part of the reconciliation process, Congress also agreed to lift the debt ceiling by $5 trillion (from $36 trillion to $41 trillion). Based on CBO projections, this new limit would hit between 2029 and 2030.

https://www.tiaa.org/public/pdf/c/cio-focus-point-the-one-brief-beautiful-breakdown-july-2025.pdf

• Mid-2027 (Financial times)

QUOTE But, in reality, the US does not have all that much fiscal space. As Arnon noted to Unhedged [subscription only content for Financial Times], the spending proposed by the new budget will help bring us to the new ceiling fairly quickly. The Congressional Budget Office estimated it will add more than $3tn to the debt over the next 10 years. That implies we will hit the new debt ceiling in mid-2027. The games of debt-ceiling chicken, which markets hate, will recommence before you know it.

https://www.ft.com/content/b1d70ab7-b679-4ff0-94db-15fb2c046626

Nothing to worry about downgrading of US credit rating from Moody's aaa to aa1

It is a downgrading but it is still very high.

https://www.perplexity.ai/search/which-countries-have-aaa-ratin-Qh7D5fYqRTeijhNDTIhSEg#3

The two other major credit rating agencies, Standard & Poor’s (S&P) and Fitch Ratings, have both already downgraded the nation’s rating — S&P in 2011 and Fitch in August 2023.

With all of them the US outlook is stable.

https://www.pgpf.org/article/moodys-downgraded-its-us-credit-rating-and-warns-that-recent-policy-decisions-will-worsen-fiscal-outlook/

If the US doesn’t solve its debt problem - it doesn’t turn into a low or even middle income country - stays high income, high standard of living

First if the US was unable to control its debt and it continued to rise, eventually a significant amount of the budget would be used just to pay off the debt interest.

This would gradually over several decades:

• reduce GDP

• increase unemployment

• reduce wages

• increase mortgage rates

• reduce the available investment for new businesses as investors favour buying Federal debt instead of business debt (called "Crowding out".

Although the effects would be gradual, the more it continues the harder to reverse. That’s why it’s better to reverse it sooner rather than later.

Details see:

https://www.pgpf.org/article/new-report-rising-national-debt-will-cause-significant-damage-to-the-u-s-economy/ New Report: Rising National Debt Will Cause Significant Damage to the U.S. Economy

Nothing would happen suddenly. It wouldn't turn the US into a middle or low income country, it would remain high income but ordinary Americans would notice wages not rising so fast, fewer job opportunities, higher interest rates and more difficult to get loans from the bank.

Then if there was an economic crisis like the pandemic the government would be somewhat more limited in what it can do. It would have to take on more debt but with more difficulty.

If it went on for long enough foreign investors might lose confidence in the US as an investment.

But not going to lead to hyperinflation or something like that.

I asked Perplexity AI which then found that page by the Peterson institute which I know is a reliable source came across it before.

It found many other sources. This is its summary https://www.perplexity.ai/search/what-would-be-the-effect-on-th-k2oV8noeS8e6lGCXlzzUtg#0

But don’t rely on its summary, it’s just a chatbot completing a pattern of words and though greatly improved from a year ago they often make the most dumb mistakes!

But Perplexity AI almost always links to genuine sources - so it’s great for fact checking - to go to is sources and see what they say, as I did.

I could expand this section into a larger article at some point.

But there are many ways to solve this problem. The main issue is politics not economics.

The simplest method of all, though politically difficult for both Republicans AND Democrats to support, is to encourage legal immigration make it easier for people in other countries to immigrate into the US. They tend to be young, hard working, entrpreneurs (like Musk), lower health care expenses, feed more into the tconomy by way of taxes.

The other simple method is to raise retirement age. And then those other ways of doing it already mentioned, taxes, VAT, reduce defence spending.

The US could have a significant peace dividend once we have peace treaties in the Middle East, the Ukraine war etc and once it is much less dependent on oil being shipped around the world because of renewables.

This is also a global peace dividend. We don’t see it yet as oil shipments still remain high and will do for some years to come, and because there are many wars still ongoing.

But those wars have potential resolutions. Most of the conflicts in the Middle East have already ended now. The Ukraine war is sure to end at some point.

And as for oil shipments, then the renewables are increasing exponentially globally. This means we see the biggest changes very rapidly in the last few years of growth as it transitions towards almost 100% renewables.

The combination of those two could lead to a significant peace dividend especially if Putin does NOT decide he wants to enter into an arms race with NATO with his much weaker economy once the Ukraine war is over.

Some progressives in the Democrat party such as Bernie Sanders want to solve the debt deficit by reducing US defence spending - not acceptable to Republicans or moderate Democrats

The idea of reducing defence spending is one that some progressives propose.

Bernie Sanders said he'd invest $16 trillion in renewables and that it would more than pay for itself and one of the ways it would do that is by reducing defence spending because it would reduce US oil imports leading to less need to use the military to defend the oil imports..

That was his election pitch for Democrat candidate when he was competing with Biden, who is much more centrist, in 2020.

I go into his idea here

https://www.science20.com/robert_walker/does_bernie_sanders_16_trillion_green_new_deal_pay_for_itself-242038 Does Bernie Sanders $16 Trillion Green New Deal Pay For Itself?

But there is no way Trump wants that.

However, this helps see that the US is in a very strong position financially. It could solve its financial problems by reducing the amount it spends on defence, but it doesn't want to do that because it wants to retain a strong military presence around the world.

Even with Trump's plans to withdraw from the rest of the world miltiarily the US still has 750 overseas bases, far more than any other country in the world. There is no sign of that changing any time soon.

From: https://www.aljazeera.com/news/2021/9/10/infographic-us-military-presence-around-the-world-interactive

CC by SA Aljazeera https://www.aljazeera.com/terms-and-conditions

For more about US bases see: SECTION: US has by far the largest global reach of any country by way of force projection - 750 bases throughout the world https://robertinventor.substack.com/p/why-we-do-not-risk-a-world-war-from#%C2%A7us-has-by-far-the-largest-global-reach-of-any-country-by-way-of-force-projection-bases-throughout-the-world

But right now that isn't even up for consideration, to reduce those to solve the deficit issues.

If Hans Blix is right, then by the second half of this century we may have moved to a world with far less by way of warfare, scrap nukes and even scrap missiles.

In such a world we’d have a huge peace bonanza and the US could scrap most of its defence budget. Its debt would then be easy to manage.

I cover that here:

Short term this may seem very implausible. Trump wants to boost defence spending and levering NATO partners in Europe to do the same. He has some justification there.

But the end result of that boost will be to keep NATO impregnable.

Once other countries realize that, then that is when the peace dividend can come again - and as they also develop their own resilience to attack.

Unstoppable progression to more and more renewables - nothing Trump can do about it except slow it down slightly in the USA

Then another factor is that the world is moving towards more and more renewables. This is unstoppable.

I go into that here:

In a world with renewables there is far less need for defence spending to protect oil fleets as we no longer depend on oil for energy.

Bernie Sanders’ idea was to speed up our transition to that world by a massive investment in US renewables in 2020.

The US military spends at least $81 billion a year protecting oil supplies. It could easily be more like $216 billion a year by a more extensive analysis. See: The Military Cost of Defending Global Oil Supplies - Securing America's Future

Over 15 years that saves $1.2 trillion to $3.2 trillion depending on whether you go to the lower or higher estimate.

https://www.science20.com/robert_walker/does_bernie_sanders_16_trillion_green_new_deal_pay_for_itself-242038 Does Bernie Sanders $16 Trillion Green New Deal Pay For Itself?

If you look under the hood, Hydropower still dominates renewables but it’s growing linearly, adding a bit over 1 terawatt per decade of renewable electricity.

Solar power is growing faster than exponential

Wind is doubling every 7 years.

But Solar is by far the fastest growing, doubling every 3 years

Here is the maths:

Recoloured solar to yellow.

https://ourworldindata.org/grapher/modern-renewable-prod?time=2009..latest

Then if you look at the share of electricity from solar

You have to go a bit further back to 4 years to see a doubling of the % - that’s because of the growth in electricity production in the weaker economies, stronger economies for the most part have almost steady or even declining total electricity production.

The EU hasn’t quite doubled in 4 years, China has more than doubled, US has more than doubled its solar energy use in 4 years.

https://ourworldindata.org/grapher/share-electricity-solar?tab=discrete-bar&time=2020&country=OWID_WRL~IND~CHN~USA~OWID_EU27

We can do a very theoretical calculation to help see how exponentials are most noticeable just towards the end.

Suppose solar was the only source of renewable power, how soon would we be able to generate all our power from solar at this rate and assuming the doubling continues?

With the word at 6.91% in 2024 and assuming doubling every 4 years how soon do we get 100% electricity from solar?

The number of doublings is n where 2^n*6.91 = 100

So the number of years is 4 * log(100/6.91)/log(2) = 15.42 years.

At this rate we can expect all electricity to be powered by solar by 2040.

It would reach 50% by 2036 and 25% by 2032, 12.5% by 2028 at this rate.

Then if solar power was all we had we’d have enough solar power to power all our cars and industry as well by 2044.

But of course the other renewables are increasing as well. And eventually the exponential growth of solar would slow down once we have almost all power from renewables.

Then the initiative to triple renewables by 2030 may increase the adoption of solar power.

But you can see from this crude calculation how solar power has the potential to overtake fossil fuels remarkably quickly.

It may go faster than that. There can be breakthrough technologies that increase adoption of solar power such as the roll up low cost Perovskite panels

BLOG: Perovskite could halve solar panel prices yet again quickly
— solar panels are already competitive with lowest cost fossil fuels
— will halve in price anyway eventually without perovskite
READ HERE: https://debunkingdoomsday.quora.com/Perovskite-could-halve-solar-panel-prices-yet-again-as-soon-as-2022-already-competitive-with-lowest-cost-fossil-fuels
Also solar power is already competitive with the lowest price fossil fuels but is set to halve in price at least once more and it may well halve in price several times more with breakthrough technologies.

What happens once solar power costs far less than fossil fuels? That may lead to even faster adoption than we have at present.

To answer some questions from those who claim we can’t do a renewables revolution:

See also

BLOG: Yes we can rise to the resource challenges of mining minerals for renewables for the green revolution
— with climate smart mining
READ HERE: https://debunkingdoomsday.quora.com/Yes-we-can-rise-to-the-resource-challenges-of-mining-minerals-for-renewables-for-the-green-revolution-with-climate-sma

Once we no longer need to use our military to protect oil shipments and no longer have territorial wars, then we can colectively start to work together to reduce not just nukes but also defence spending.

I think myself that that is when we become a true civilization. When we can resolve our disputes with other forms of competition without killing each other.

See again my:

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TIPS FOR DEALING WITH DOOMSDAY FEARS

If suicidal or helping someone suicidal see my:

BLOG: Supporting someone who is suicidal

If you have got scared by any of this, health professionals can help. Many of those affected do get help and find it makes a big difference.

They can’t do fact checking, don’t expect that of them. But they can do a huge amount to help with the panic, anxiety, maladaptive responses to fear and so on.

Also do remember that therapy is not like physical medicine. The only way a therapist can diagnose or indeed treat you is by talking to you and listening to you. If this dialogue isn’t working for whatever reason do remember you can always ask to change to another therapist and it doesn’t reflect badly on your current therapist to do this.

Also check out my Seven tips for dealing with doomsday fears based on things that help those scared, including a section about ways that health professionals can help you.

I know that sadly many of the people we help can’t access therapy for one reason or another - usually long waiting lists or the costs.

There is much you can do to help yourself. As well as those seven tips, see my:

BLOG: Doing what matters at times of stress
— new WHO booklet to help with mental health during COVID19 pandemic

BLOG: Breathe in and out slowly and deeply and other ways to calm a panic attack

BLOG: Tips from CBT
— might help some of you to deal with doomsday anxieties

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