Always be prepared for the inevitable, especially since American exceptionalism is really just a grand illusion. Indeed, there is nothing exceptional about putting loads of US consumer debt on the government books, money printing or threatening to cancel US debt held by trade partners. The US government is bankrupt, you must be prepared for the unexpected.
The truth has really been hiding in plain sight all this time. For 20 years the US has been has in a state of informal bankruptcy, only propped up by trade partners faithfully buying heaps of US government debt and holding it to maturity.
However, foreign governments are wisely starting to diversify away from US treasury debt. While at the same time US government liabilities keep growing at a much faster pace than revenue generation. If this was a bankrupt individual, the option would be restructuring overseen by the courts. But this is the US government we are talking about, so anything goes.
Delusions of an Insolvent Global Superpower
The Trump administration intends to impose lavish tariffs on trade partners and allies and rely on this as a significant source of revenue generation. Plus, they will use subsidies and tax cuts to mobilize an illusory US industrial base. This will somehow increase government revenue. It obviously is not going very well e.g. Intel Corporation.
In addition, the US government intends to force foreign companies to open subsidiaries in the US and invest billions of dollars while hiring semi-competent Americans. Apparently, this will enable US companies to acquire high level technology they do not know how to make for themselves.
So will China play along and open US subsidiaries to let the US copy their very successful 5G infrastructure, AI and robotics? Seems unlikely.
Oh and don’t forget that all global trade must be in US dollars, otherwise no one would buy USD. If this all sounds like some kind of forced financial work around plan, that’s because it is. The US Government is bankrupt, just like all bankrupts, they believe in miracles.
The Same Old Excuses and Threats
There is distinct pattern behind the bluster. You have at some point lent money to a friend, acquaintance or business. Most often, you get the money back with interest and all is well.
But if you were careless, the debtor may have turned out to be a deadbeat. If so, the bluster and wishful thinking coming from the US government may sound familiar. Indeed, when you tried to collect, the debtor’s excuses may have been on a different level, nonetheless the meaning remains the same.
There are different ways of saying, “I am not going to pay unless you grant concessions. So what are you going to do about it”? The difference is that this time the deadbeat is the US government. Unfortunately, their state of insolvency has huge implications for the global financial system.
The US government also has a formidable military. In addition, the US and its Allies do not shy away from using military force in ways that would otherwise be considered criminal, if not for the fact it was the US government that was behind it.
For the foreseeable future, threats of tariffs (China, Mexico, Canada, EU), annexation (Greenland, Canada, Panama), theft of natural resources and intimidation (OPEC) plus racial polarization are the new global norm imposed by the US. Rest assured, the US government will do anything to create a distraction from the fact that it can no longer pay its debts.
When you look at it from that angle, it will make perfect sense. MAGA economics is not an economic renaissance, it is a debt restructuring of colossal proportions. The world is going to pay. In this era, the US government is bankrupt. It is long overdue.
Why is the US Government Bankrupt?
During the last 25 years, for far too long, US trade surplus countries such as China, Japan, Germany, South Korea have shored up US government deficits. This is the hidden secret behind illusory US solvency.
Since 2000, the US government has accumulated more debt than throughout the entire history of the country. Indeed, US Total Public Debt in January 2025 is over 6x higher than it was in January 2000.
All of the debt racked up from forever wars (Iraq, Afghanistan), middle class bailouts (2008 Global Financial Crisis, Dotcom Bubble). Plus, unnecessary COVID handouts (7 trillion dollars for this alone) and lots of lavish tax cuts.
These essential trade surplus countries faithfully buy trillions and trillions of dollars of US government debt in order to prop up American consumers, who then buy lavish amounts of imports from the trade surplus countries.
It is a bitter irony that these trade surplus countries also inadvertently bankroll America’s foreign wars. For example, China may have been opposed to the Iraq war, but they financed it nonetheless.
The US Government is Bankrupt
Indeed, the US government is bankrupt. Americans need to consistently borrow more and more to cover deficit spending and roll over their massive accumulated debt load. If they cannot continue to borrow more and more, the free ride abruptly ends.
The only difference between the US government and countries who experience currency crises is that the US can print money with impunity. If other countries did this, they would have hyper inflation, currency crisis, IMF intervention and ultimately the government would probably be at risk of being overthrown.
The US government’s secret is that they can force other countries to buy their debt and also trade in US dollars. So far so good, but will US creditors continue to be so submissive under threat of tariffs and trade sanctions? Probably not, the US government’s strategy is unsustainable.
The Unsustainable Path of US Government Debt in Three Graphs
Despite the fact that US interest rates were mostly at 0% or below between 2008 and 2022, the amount of interest the US government pays out still grows exponentially.
US government interest payments were only 350 billion in Q1 2000 and in Q3 2024 total interest payments had increased by over 3x to reach 1.116 trillion dollars.
US interest rates are much higher now and expected to increase. This is especially true if the foreign governments who prop up US debt continue their diversification out of US treasury holdings.
Indeed, US Fed chairman Jerome Powell has correctly described the US 36 trillion dollar debt as “completely unsustainable”. In addition, the budget deficit is estimated by the US Congressional Budget Office to be over 6.2% of GDP for 2025. The light at the end of the tunnel appears to be a train.
US government current expenditures exceeded 7.52 trillion dollars in 2024 as displayed on the chart above. Sensible economics requires that rapidly rising financial commitments would be matched by increased revenues. Not so in the US.
In fact, US government current tax receipts are only 3.112 trillion dollars, far less that current government expenditures of 7.52 trillion dollars. This leaves a massive spending deficit of over 4.4 trillion dollars going into 2025.
In addition, the Trump administration plans to lower taxes further in 2025 and make existing tax cuts permanent. Indeed, even the anticipated one trillion they hope to get from tariffs is really just wishful thinking.
No Solution For America’s Unsustainable Debt
It is getting increasingly difficult to cajole and intimidate other countries into buying America’s debt. This is especially true after the US government seized Russia’s 300 billion in US assets. It is a fool’s errand to lend the US money.
So if money does not grow on trees, believe me it really does not grow on trees, then someone has got to pay for it. One thing is certain, it will not be Americans.
Indeed, foreign governments have finally taken note and they are diversifying out of US treasuries. This is bad news for the US because the US cannot pay its debt without more and more foreign funding.
For now, US financial institutions are stepping in. US Domestic financial institutions now buy over 3/5 of all US debt issued. This is tantamount to borrowing money from your kids to pay back a loan from your parents.
If the US defaults on its debt, the USD will become worthless very quickly. If so, the hyperinflation that only seems to happen in developing markets will unavoidably be in the US.
US domestic institutions financing the deficit is a short term solution. Without continued foreign support, I am afraid America’s free ride is over.
It is No Secret the US Government is Bankrupt
Every country that holds a trade surplus with the US has been targeted by the Trump administration. They are not hard to find. Consider that even Italy and France have large trade surpluses with the US government. Their largest exports are luxury goods for the spendthrift US consumer!
It seems unimaginable but it is real. The US does not produce anything significant outside of financial services and military equipment. US car production has been lame since the 1980s. As a result, Americans still have a justifiable preference for foreign cars.
Boeing was seemingly indispensable to US manufacturing but their 737 Max scandals have brought global disrepute. In addition, their overzealous union is a sign of things to come. Boeing workers demand massive wage increases while producing defective aircraft.
At time of writing there has been some market rattling developments regarding Chinese AI platform DeepSeek. Evidently, China can now produce AI on par with the US mega tech companies. However, China can do it at an expense ratio that is 95% lower than US big tech. US exceptionalism indeed.
For diseases there always has been a cure, you just take the vaccine which always seems to magically appear e.g. COVID. So what is the cure for a profligate consumer democracy that is careening off the rails? The answer is Donald Trump.
Is Trump the American Savior or a Dangerous Fraud?
The American people overwhelmingly elected Donald Trump for a second term. The US government is bankrupt, so can Trump economics save America? Absolutely, this is what Trump’s political career is really all about.
Rest assured, Donald Trump is the right man, at the right time, for the right job. But things are not always as they seem, especially in the US where Trump is perceived to be a financial genius. The US middle class has spent over a decade watching Trump’s board room bravado on his massively successful reality TV show – The Apprentice.
Ironically, Trump also plays the same role of “billionaire” businessman in real life. A tough guy that will reinflate the US consumer debt bubble and get China to pay for it.
What most Americans don’t know is that Donald Trump’s “business empire” is built on reoccurring bankruptcy. In the real business world, Trump has declared bankruptcy 6 times!
If not for the massive financial success of “The Apprentice”, he would have drifted into obscurity long ago. Trump’s hit TV show, which I never watched a single episode of, was essentially based on teaching Americans to get rich. And they loved it!
However, Trump’s secret to success is that his reality TV show, in reality (pun intended) is based on Trump’s extensive bankruptcy experience, not the legitimate career of CEO heading a US business empire.
As president, he will be the perfect prick to pop the illusion of American “Exceptionalism”. So hopefully, the days of trade surplus countries propping up the American consumer are finally over.
The US is bankrupt, look out below.