Ticking Dollar: The 36 Trillion Time Bomb

National Debt and the Status Quo

According to the reports, the world’s biggest economy, the United States' national debt, has crossed a staggering $36 trillion. This means that the country owes more than its GDP, a dismal ratio that sends warning signals across global financial markets. This immense debt has been called a “ticking time bomb”—a metaphor capturing the risk of financial instability if left unchecked.

The U.S. national debt is the total amount of money the federal government owes to lenders. It comprises two main components:

Public Debt refers to the money borrowed from investors, foreign governments, individuals, and corporations. It is as high as about $26 trillion for the country and;

Intragovernmental Holdings means the money that the government owes to itself, which is mostly borrowed from trust funds like Social Security and Medicare. This stands at about $10 trillion.This debt accumulates when the government spends more than it collects in revenues (mainly taxes) and borrows to make up the difference.

Why the Debt Keeps Growing?

The American debt crisis arises from a series of financial mismanagement activities, where the country entered into a vicious cycle of unsustainable borrowing and spending.

The Spending Problem

Irrespective of the country's economic condition, the US government has consistently spent more than their earnings, whether the markets and businesses are enjoying a boom or suffering from a recession. The question arises: Where is this massive amount of money spent?

Firstly, Social Security constituted about 22%, the most significant component of the US Federal Budget spending in 2024. The population of retirees in the US is currently growing faster than the population of working-age individuals. As a result, the ratio of retirees who depend on Social Security benefits to the working population has grown; thus, the government must ensure that the program has the resources to fund itself fully in the upcoming decades.

Secondly, the rising interest cost of the National Debt creates a significant problem. According to CBS News, the government’s debt payments are hitting new highs, with Washington now spending $1.1 trillion annually on interest alone- more than the GDP of 174 countries.

Thirdly, the US maintains the world’s most expensive defence system, spending over $800 billion annually. National Defence, which accounts for 13% of Government spending in 2024, has seen a step-up in expenditures.  

Along with all these major expenditures, trillions have been spent on COVID-19 relief, infrastructure bills, military aid, and other discretionary programs.

A Tax System Biased to the Wealthy

Over the decades, the tax policies have been such that they have favoured the wealthy. An analysis concluded that the poorest 20% of Americans received only a small fraction of tax cuts, while the wealthiest 20% reaped the benefits from about 65% of all tax reductions. This inequality has widened the wealth gap and left the middle and lower classes grappling.

Falling Demand for U.S. Debt

In earlier times, the U.S. could sustain high borrowing due to the high international demand for U.S. Treasury bonds, which are considered ultra-safe. But that perception has started to change now.

Credit rating agencies like Moody's have downgraded U.S. government bonds, explaining political instability, unsustainable fiscal policies, and governance risks as possible reasons. This has led to lower demand for U.S. debt. This is a matter of concern as the government must offer higher interest rates to attract buyers, raising the cost of borrowing.

US Debt Crisis Impact on India

At first, the US debt problem might look like no concern to India. But in today’s world of international trading and a deeply connected global economy, the cascading effect of activities in Washington is possible across Mumbai, Delhi, and beyond.

Stock Market Uncertainty

In riskier times, the investors tend to play it safe. This means they pull out of riskier markets, including emerging economies like India, and move to assets in countries considered"safe havens," such as U.S. Treasury bonds. However, this time, the asset class is the crisis's epicentre.

Rupee Volatility

The U.S. dollar accounts for more than 70% of transactions worldwide, thus being the backbone of global trade. Therefore, when the U.S. economy stumbles, the dollar can behave erratically, leading to trouble for the Indian currency.

If foreign investors start selling Indian assets and converting rupees to dollars, the rupee will weaken, thus making imports expensive and increasing inflation.

 Stagnant Wages and Rising Costs

India is itself suffering from sticky inflation, particularly in the healthcare sector. According to the recent data, medical inflation is rising at a whopping rate of 14% annually, whereas middle-class wage growth is effectively hovering around 0.04% only. If a global debt crisis occurs due to the US, it will lead to supply chain disruptions, import inflation, or a weak rupee. This translates to less purchasing power for a commoner and higher living costs.

Possible Solutions to Defuse the Bomb

Addressing and solving this issue won’t be easy. However, some pathways must be tapped into to deal with the crisis before the debt spirals out of control.

Balanced Budget Reforms

It is possible to stabilise the debt through gradual reductions in deficits. Imposing spending restraints and modest tax increases is entering the equation. At the same time, restricting spending will hurt the social programmes offered by the government.

Tax Reform

Directly raising taxes can lead to protests from the general population. Therefore, the government can increase revenue by simple steps like closing loopholes, introducing wealth taxes, or adjusting corporate tax, which also won’t hinder growth.

Entitlement Reform

Raising the retirement age, tweaking benefit formulas, or means-testing programs like Medicare could make the situation more sustainable.

What Happens If the Bomb Goes Off?

In case the U.S. debt crisis spirals out of control, credit rating agencies may begin by downgrading U.S. government debt, signalling reduced confidence in the country's ability to manage its finances. This downgrade would likely prompt investors to demand higher interest rates to compensate for the increased risk, significantly raising the government's borrowing costs.

As uncertainty grows, the U.S. dollar could depreciate sharply in global currency markets. A weaker dollar would make imports more expensive, driving up the cost of goods and contributing to a spike in inflation. In response to this inflation, the Federal Reserve might be forced to raise interest rates aggressively, which could choke off investment and consumer spending, ultimately triggering a recession.

These effects would lead to a collapse in global confidence in U.S. financial leadership. As the foundation of the international monetary system, a loss of faith in the U.S. economy could lead to widespread market instability within the country and across the world.

Conclusion

The staggering national debt of the United States is not just a figure—it's a reflection of deeper structural and economic challenges that demand urgent attention. For decades,  administrations have either ignored or postponed hard decisions, choosing instead to borrow their way through political impasses, recessions, and wars. However, the scale and pace at which the debt is growing today signal a new phase—one where the consequences of delay could be far more damaging than the decisions required to prevent them.

Still, the situation is not without hope. There are clear, actionable policy levers that could set the U.S. on a more sustainable path. As the world watches, the United States must choose between short-term comfort and long-term stability. A failure to act boldly now may not immediately trigger catastrophe, but it will quietly erode the country’s ability to act later.

The debt clock is ticking. The question is—will the United States act before the alarm rings?

References

1. Wright Research. (n.d.). US is drowning in debt—will it impact India? Wright Research Blog. Retrieved from https://www.wrightresearch.in/blog/us-is-drowning-in-debt-will-it-impact-india/

   
   

2. Money Talks News. (2024, September 14). America’s debt bomb is ticking — and it could affect you. Retrieved from https://www.moneytalksnews.com/americas-debt-bomb-is-ticking-and-it-could-affect-you/

   
   

3. Al Jazeera. (2025, May 20). The US has $36 trillion in debt: What does that mean and who owns it? Retrieved from https://www.aljazeera.com/news/2025/5/20/the-us-has-36-trillion-in-debt-what-does-that-mean-and-who-owns-it

   
   

4. Kumar, A. (2024, November 23). America’s $36 trillion debt bomb: A ticking time explained. LinkedIn. Retrieved from https://www.linkedin.com/pulse/americas-36-trillion-debt-bomb-ticking-time-explained-amarjeet-kumar-rqy0c/

   
   

5. HDFC Mutual Fund. (2024, October 10). Rising US national debt: Key risks and impact on the global economy. HDFC Fund - Knowledge Stack. Retrieved from https://www.hdfcfund.com/knowledge-stack/deep-dives/tuesdays-talking-points/rising-us-national-debt-key-risks-and-impact-global-economy

   
   

6. BBC News. (2025). The US is drowning in $36 trillion debt. Should the world worry? BBC. Retrieved from https://www.bbc.com/news/articles/cx2j03w10gno