Glass Tendrils of Debt – The downfall of a once great economy

By Phillip Cox

Bachelor of Business (Finance)

Key US Debt figures:

fiscaldata.treasury.gov (official US figures)

Debt: USD $39.4 Trillion

GDP: USD $32 Trillion

Budget: USD $4.9 Trillion

Deficit: USD $1.25 Trillion

Tax Revenue: USD $3.66 Trillion

Current cash rate: 3.353%

Great civilisations come and go in time and the United States of America has definitely left quite the mark in the past 100 years. It is said every great civilisation becomes over zealous and collapses from within. When looking at the USA with its hundreds of billions of dollars of military might one might baulk at their prowess. Then one probes a little further and hidden in plain sight is their debt arrangements. With interconnected streams of debt between private companies and public institutions. These debts lattice across each other over the entire States of America, and at the top of this lattice a surmountable figure of USD$39.4 Trillion in debt. Now I understand some of this is easily serviceable on the institutional side with the great economic prowess of the American company, but not all of it is. To look at these figures, publicly reported by the US Governments own reporting body, the figures are alarming. With thirty nine point four trillion in debt the annual interest payments exceed USD$1.3trillion, and that’s not paying any principal down. To be paying their debt down over a forty year period or more they should be paying USD$1trillion in principal as well, not to say it would ever be fully paid down but they significantly need to reduce the burden of their interest payments and the only way to do that is to also pay down their principal. At the moment they are actually increasing their principal because their budget deficit is growing by at least USD$1.2 trillion per year. The honest truth is with principal and interest payments their debt servicing to income ratio is approximately 60%. That is way too high for any advanced economy. And that means they need to spend 40-60% of their tax revenue on debt streams instead of their economy, government organisations and human services.

Is there a solution to their predicament? 

Not an easy one. Most international countries have pulled out of loaning them debt and reduced their debt holdings to the US significantly over the past decade. It becomes clear every nation but the USA could see their burgeoning debt binge and have slowly been retreating from their shores. 

The most shocking element is I don’t know what they spent the money on. The defence budget is almost USD$1 Trillion a year, but that includes wages and vetting and general security costs. Which is 20% of their Federal Budget and also means they’ll have to significantly cut back on their defence budget as their federal budget is USD$1.2 Trillion in deficit each year. Exclude the deficit and bring their spending back just to tax revenue? They have USD$3.6 Trillion to play with annually, and if they seriously consider paying down their debt and interest their service payments would sit between $1.5 Trillion to $2.3 trillion, leaving them only $1.3 trillion to $2.1 Trillion to spend on their country. Subtract their current military budget and it’s a shocking $400 billion to $1.2 trillion to play with. And countries like Australia with approximately 8% of the population have more to play with in their Federal Budgets. 

Their economic standards don’t measure up. It’s not necessarily a chaotic collapse ahead for them, they have time to repair their economy. However I cannot see their dollar holding up against any international economy, they have to focus on themselves as their debt is primarily internal and focus on paying it down. They don’t have to be a closed economy but no country in their sane mind is going to lend them more debt. 

Federal Reserve Holdings

“The Federal Reserve has reduced its holdings of Treasury and agency securities by about $180 billion since the beginning of the year, bringing the total reduction in securities holdings since mid-2022 to more than $2 trillion.”

Currently the US Federal Reserve holds almost as many liabilities as assets and the assets are tied up in internal debt rather than in cash for emergency debt payments.  

 (Source: federalreserve.gov, ‘Monetary Policy Report – Report to Congress’ page 38, June 2025)

So what do they need to do?

Well firstly, they need to increase their revenue and spending internally. To do this they need to raise taxes across the board but drop their baseline 10% tax on the 0-12,400 bracket. They also need to increase wages for the bottom end of town  by at least 25% and increase taxes in the mid-range to high-end of incomes. Higher average incomes and higher taxes will increase tax revenue. Secondly as their dollar collapses as the world becomes more aware of their debt predicament (which they have been aware for some time) the collapsing dollar will boost their manufacturing as other countries can buy cheaper goods from the Americans. 

They need to cut military spending because they can’t afford their current levels. As a military nation they will hate that but it is necessary. And for $1 trillion a year in military spending where did it go? With only 11 aircraft carriers at $13billion a pop, that’s only US$143 billion.

They also need to dig into their oil reserves and start selling more oil, and you know what, with an increasingly electric market for cars, there’s probably only a limited time to do it. According to BP’s 2021 report there was 68.8 billion barrels in  proven reserves in America. Which at 69 USD a barrel is approximately 4.7 Trillion worth of oil, but that’s before costs, but it will bolster economic factors in multiple regions in America and help to pay down some debt.

How do other countries compare? 

Well Australia is sitting pretty good, their interest debt servicing is only at approximately 4.3%. China? Even better at 1.8%. UK, okay at 10.9%. Even their neighbour Canada is at 12.9% which is suitable. But 36% of your tax collections needing to go to just interest payments alone is too much, even just the reduction in expenditure for the national budget from $4.9 trillion to $3.7 trillion is a big hit to their economy. That’s without debt servicing. So they have a long way to go. They need to knuckle down on corruption, tax loopholes and look to other countries with suitable tax arrangements to bolster their tax income. 

Where did this fascination of debt come from?

It appears they were duped into believing their GDP was accessible, the past four presidential terms all quote their Debt to GDP ratio as though their GDP would be a liquid asset ready for paying debt if necessary. But it’s not, it’s the value of products and services sold throughout the year. It boggles the mind of common sense how any administration can become this indebted and how their citizens can continue to let them get away with this expenditure. 

And the consumer household debt?

I won’t go into the figures but the consumer household debt is reasonable which tells me there are plenty of Americans with common sense debt strategies and it’s about time they stand up and work for their own country by putting their own hands up for Congress and reign in their Governments’ spending and increase their Governments revenue streams. 

How do other countries fair in this predicted upcoming crisis?

Surprisingly well I think. China holds a steady pace as another large economic partner in the world with a huge economy to rival or soon to exceed that of the USA’s. There are other countries to hold up economic bastions to the world as well. The USA succeeded in applying tariffs and pursuing financial isolationary policies and the rest of the world has largely receded from their trade, but they’ll support US manufacturing as the dollar drops and they can buy cheaper goods from the US and that will help the US pay down their internal debt and help other countries become more advanced economies. The world might sneeze a little, but not as much as they once would have in America’s economic heyday. Shoutout to Canada, they’ll get some premium American goods at cheaper prices now, maybe even a state or two if things go from bad to worse. Maybe they’ll sell a southern state or two to the South America’s. 

But one thing is for sure, the great economic shine of the United States will end sooner rather than later. The Chinese Dragon will rear its head, India will step forth and the European Nations will hold their own. Tech nations like Japan and Taiwan will continue to prosper. And Australia? We’ll do just fine, but we also have opportunities to increase our share of our value chain of our products and services.