The Alarm Bells Are Ringing
In October of this year, America’s debt surpassed what many believe is an insurmountable threshold of $38 trillion. This massive balance represents what our federal government now owes to individuals, companies, and foreign governments mainly through treasury securities as well as so-called “intergovernmental debt.” The latter reflects what the federal government owes to its own agencies namely in the form of treasury bills, bonds, and notes held by Social Security and Medicare trusts and federal employee retirement funds.
Soaring national debt can lead to higher inflation, reduced economic growth, a collapse in market confidence, rising interest payments and a full-blown fiscal crisis.
How We Got Here
National debt does not just happen. It is the result of decades of accumulated deficits, chronic imbalances between revenue and spending, lofty government entitlement programs, and rising debt servicing costs.
According to USA Today:
“The national debt can be compared to the federal government using a credit card, the Treasury says. When income is less than spending, the government borrows money, creating a deficit. That means the government must pay back the borrowed money and the interest on the borrowed amount. As the debt increases, more interest money must be paid. Those interest payments have become large outlays in federal spending.”[1]
And let’s not forget outlier events like global wars, natural disasters and pandemics. The Covid-19 epidemic reportedly added over $24 trillion dollars to U.S. national debt. The crisis brought a slew of legislative measures designed to provide monetary assistance and relief to American families and businesses impacted by the shutdowns, lockdowns and business closures. These included measures like the “Families First Coronavirus Response Act,” the “Coronavirus Aid, Relief and Economic Security Act” (CARES), and the “American Rescue Plan Act.”
According to Tax Policy Center, Covid-19 fiscal measures resulted in deficits of 14.9 percent of GDP in 2020 and 12.4 percent of GDP in 2021—the largest ratios since World War II. The deficits drove up the national debt from 79 percent of GDP at the end of fiscal year 2019 to 97 percent at the end of fiscal year 2022.[2]
If the Debt Dam Breaks
So, could America default on its debt? If Congress failed to fund the government, could not agree on new debt ceilings or new continuing resolutions resulting in the government’s inability to meet its debt obligations — yes, it would technically default. We’ve all witnessed the political gridlock that kept the government in complete shutdown from October 1st to November 12th — so another crippling Congressional stalemate is not outside the realm of possibility, and the fallout would be catastrophic.
And according to Brookings, a debt default would hit Americans where it hurts.
“A default on all outstanding U.S. Treasuries would almost surely precipitate a global financial crisis. Further, because about 70% of the debt is held by Americans, most of the savings from foregone interest payments would be at the expense of U.S. investors. In addition, the U.S. would likely lose access to capital markets for some time. That would mean that spending would immediately have to fall to the level of revenues and that the U.S. would not be able to borrow during downturns or in response to other economic shocks. Finally, defaulting on our debt would mean relinquishing the U.S.’s status as a global financial leader, with far-reaching consequences.”[3]
One of the few things preventing the U.S. from a debt default is the dollar’s role as the world’s reserve currency. It enables to government to increase the monetary base by effectively printing money and issuing new treasury bills, bonds and notes to pay off older debt which then leads to higher interest rates and a snowballing debt burden.
But according to The Economic Times, the dollar’s clout may not be enough.
“Many Americans believe the dollar’s reserve status shields the country. The truth is, it provides only limited protection. If investors doubt U.S. debt management, they may demand higher yields on Treasury bonds. Higher yields mean more money spent on interest and less for social programs, infrastructure, or economic growth. Even a strong currency can’t mask structural risks.”[4]
The Threat to Your Money
According the World Economic Forum, there are four key ways that a U.S. debt default could impact you and your money:
1. Recession – A US debt default—even a short debt ceiling breach—is expected to push the US economy into a recession … Economists note that a recession caused by a debt default could be especially harmful since the government would be unable to provide financial relief to the public.
2. Stock Collapse – US stocks are expected to fall dramatically as a result of a debt default. The White House’s report estimates that a protracted default could cause the stock market to plummet 45%. The drop would significantly impact retirement accounts and consumer confidence, further exacerbating an economic slowdown, experts warn. A mass stock selloff, Moody’s states, could wipe out $10 trillion in US household wealth.
3. Unemployment Spike – As a result of the economic downturn, unemployment is expected to rise significantly and quickly. Moody’s estimated that a prolonged default could wipe out nearly 8 million jobs, increasing the unemployment rate to over 8%. Even a short debt ceiling breach could cost 1.5 million jobs and increase unemployment to up to 5%, the agency found.
4. Soaring Cost of Borrowing – A debt default would make it more expensive for the US to borrow money since the risk of holding Treasury debt would rise for lenders. This would cause interest rates to rise across the US economy … Fitch Rating statedthat a US debt default would result in the country’s rating being moved to a “RD” (Restricted Default) classification and that impacted US Treasury securities would carry a “D” rating until the default is corrected. ‘The risks engendered by the default would cause interest rates to skyrocket, including those on the financial instruments that households and businesses use—Treasury bonds, mortgages, and credit card interest rates.’[5]
The ‘Next’ Great Recession?
Suffice to say that a U.S. debt default would trigger a financial shock not experienced in generations. And it would touch just about everything including jobs, housing, lending, consumer prices, savings, and of course market confidence.
Domestically there would be rising borrowing costs, political gridlock, and potentially painful austerity measures — globally there would be a deep erosion of America’s economic standing, a dramatically weakened dollar, and even a global recession.
According to the Roosevelt Institute a U.S. debt default would be a perfect storm of economic pain:
“Social Security payments would immediately be delayed. That would cause hardships for many, and immediately cause consumers to panic, stop spending, and slow the economy, threatening a major recession. Estimates from both public and private researchers are consistent on the scale of economic disaster here. According to Moody’s Analytics, even a short debt breach would lead to 2 million jobs lost right away and the unemployment rate skyrocketing to 5 percent. Worse, a protracted default would essentially create a second Great Recession.”[6]
One of the few assets whose value is not dependent on the government paying its bills, meeting debt obligations, printing new money, or issuing more debt — is physical gold. It is the quintessential default hedge. Gold has no country. Its value is not derived from any regime or ruling body. Its worth is not dictated by budget debates, domestic politics, partisan gamesmanship, or global cooperation. It is issued by no one and as a result it thrives in environments of systemic risk and monetary chaos.
Perhaps this is why gold is up almost 60% year-to-date and expected to go higher in 2026.
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[1] https://www.usatoday.com/story/graphics/2025/10/30/national-debt-38-trillion-what-it-means/86947762007/
[2] https://taxpolicycenter.org/briefing-book/how-did-fiscal-response-covid-19-pandemic-affect-federal-budget-outlook
[3] https://www.brookings.edu/articles/what-are-the-risks-of-a-rising-federal-debt/
[4] https://economictimes.indiatimes.com/news/international/us/is-the-united-states-on-the-brink-of-a-debt-crisis-as-americas-debt-hits-38-1-trillion/articleshow/125698719.cms?
[5] https://www.weforum.org/stories/2023/05/5-way-a-us-debt-default-could-affect-you-and-your-money/
[6] https://rooseveltinstitute.org/blog/defaulting-on-our-debt-would-cause-the-next-great-recession/?
