America’s Debt Mess
US National Debt just surpassed $37.5 trillion dollars. It is not only at an historic level; it has reached a dangerous threshold. According to Pew Research, our debt is “considerably bigger” than the size of the entire American economy which was $30.3 trillion at the end of Q2 (June 30th). At the end of the second quarter, U.S. national debt stood at $36.2 trillion making it 119.4% of GDP — and things have only gotten worse.[1]
High national debt levels present a host of problems for the federal government and the country from the increased risk of inflation to the loss of U.S. competitiveness — from the threat to entitlement programs (like social security and Medicare) to the increased danger of sovereign default.
While federal debt reflects the sum of our cumulative borrowing, the deficit is the gap between what the government pays out versus what it collects in revenue. So, every time the government comes up short and the deficit increases, it must borrow more money and issue more debt to make up the difference.
The Danger of Sustained Deficits
Ronald Reagan famously said, “We don’t have deficits because people are taxed too little. We have deficits because big government spends too much.” The word ‘deficit’ means shortage, shortfall or deficiency. In financial terms, a ‘deficit’ occurs when expenses exceed revenue.
Chronic deficits lead to higher debt and that can distort markets, undercut private sector investment, and undermine the overall financial health of the economy.
“Governments that run sustained deficits rely on creditors’ confidence that debts will be serviced and repaid. Large structural deficits and rising national debts increase the risk of default … Persistent deficits in the context of high national debt also threaten to undermine economic resilience and restrict the government’s ability to respond to future economic crises or make long-term investments in infrastructure. They can also contribute to elevated interest rates if investors begin to demand a higher risk premium and if the supply of government bonds exceeds demand.”[2]
Deficits are essentially a negative account balance in the federal checkbook. They represent excessive withdrawals and cumulative overdrafts — and their presence prevents America from ever balancing its budget. As a result, the government borrows to cover the shortfall based on legislative authority granted by Congress. But when Congress fails to issue a new budget and appropriate more money before the start of the new fiscal year (October 1), a shutdown occurs.
A Very American Shutdown
While government shutdown threats are not unique to the U.S., the frequency with which they occur is. Many other countries have automatic and provisional budget funding in place to avoid impasses, but our system of government lends itself to budgetary standoffs due to our separation of powers and extreme political polarization.
“Government shutdowns do not occur in peer countries because their governments do not react to a lapse in funding bills by shutting down operations. Instead, they implement shorter-term solutions (such as continuing to operate the government at the amount budgeted the year before) or longer-term solutions (such as holding elections so a new government can pass the annual budget).”[3]
Spending oversight and restrictions on the use of taxpayer dollars is, for the most part, written into the U.S. Constitution. When there is neither a full-year budget, spending bill or a continuing resolution (CR) — Article I of the Constitution and the Antideficiency Act prevent federal agencies from spending taxpayer dollars without authority from Congress.
According to the Bipartisan Agency, when there is a government shutdown, federal departments, agencies and programs must do the following:
- Stop all projects and activities, as quickly as within three to four hours
- Furlough employees whose work activities have not been exempted from the shutdown
- Halt pay for all government employees and contractors, whether they are working (exempted) or not
- Sign no further contracts for goods and services.[4]
The Cost of Running out of Money
The fallout of fiscal standoffs, budgetary impasses and a complete government shutdown means that many government employees won’t report to work, essential public services could be threatened, federal courts may run out of money, travel may be disrupted, and national parks, museums, and zoos may partially or fully close.
In addition, the Small Business Administration will likely furlough a large percentage of its workforce so most small business loans will not be approved. Also, the publication of critical economic data will stop as the Bureau of Labor Statistics will suspend operations.
So, there is significant disruption and risk when the government closes down — particularly in terms of our social safety nets, public safety mandates, and overall federal efficiency. There is also a cost with respect to America’s perceived stability and economic dominance, and this tends to be an ideal environment for defensive assets like precious metals.
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[1] https://www.pewresearch.org/short-reads/2025/08/12/key-facts-about-the-us-national-debt/
[2] https://impaxam.com/insights-and-news/blog/approach-with-caution-why-the-us-deficit-poses-risks-for-treasuries/
[3] https://www.pgpf.org/article/a-brief-history-of-us-government-shutdowns-and-why-other-countries-do-not-have-them/
[4] https://bipartisanpolicy.org/explainer/what-happens-if-the-government-shuts-down/
