The United States’ national debt has reached a precarious milestone, reaching 100 percent of gross domestic product (GDP) and putting the nation on a trajectory that could trigger six distinct types of fiscal crises, according to an ominous new warning issued Thursday by the Committee for a Responsible Federal Budget (CRFB).
With the national debt effectively equal to the size of the entire American economy, the nonpartisan watchdog’s latest report, “What Would a Fiscal Crisis Look Like?” outlined a dangerous future. “If the national debt continues to grow faster than the economy,” the report says, “the country could eventually experience a financial crisis, an inflation crisis, an austerity crisis, a currency crisis, a default crisis, a gradual crisis, or a combination of crises. Any of these would cause massive disruption and substantially reduce living standards for Americans and people around the world.”
The report warned that unless policymakers adopt a “pro-growth deficit reduction package,” disaster is likely to follow. “The United States is deeply in debt, and its finances are on an unsustainable long-term trajectory,” the report concluded. While it is “impossible” to know when disaster will strike, “some form of crisis is almost inevitable” without a course correction, the CRFB said.
Among the most alarming scenarios detailed is the “Austerity Crisis”. In this potential future, a loss of market confidence would force lawmakers to enact steep and massive spending cuts or tax hikes to quell the panic. While deficit reduction is necessary, the CRFB warned that the rapid implementation of such austerity measures during a weak economy could trigger the worst economic contraction in nearly a century.
The report estimated that a fiscal contraction equivalent to 5% of GDP could reverse modest growth into an economic contraction of 3%. This would mark a recession deeper than any seen in the postwar era, with US manufacturing falling by more than 2% year-over-year since 1950. Such a scenario would likely lead to higher unemployment and more business closings, creating a self-reinforcing depression.
As an example of such an austerity crisis, the CRFB pointed to Greece in the 2010s during the Great Recession, when economic weakness led to an “unsustainable rise” in loan and bond yields, prompting a painful set of austerity measures that decimated the economy and pushed the unemployment rate to record levels. Portugal and Spain had similar, less severe crises during this period. Yanis Varoufakis, the former Greek finance minister who opposed these austerity measures and resigned in protest, spoke to wealth in February 2024 about the strange mutations of the modern economy in a world of low aggregate demand, warning of a “depressed society” and even the onset of “techno-feudalism”.
Beyond forced austerity, the watchdog identified five other crisis scenarios:
1. The financial crisis: If investors lose faith in the US Treasury market, interest rates could rise uncontrollably. This would devalue existing bonds, potentially triggering cascading failures at banks and financial institutions.
The report cited the 2023 collapse of Silicon Valley Bank as a “small-scale” preview of how rapid rate hikes can destabilize the banking sector. More broadly, however, he pointed to 2007 as a famous example of the financial crisis, driven by the collapse in valuations of subprime mortgage-backed securities, leading to a global financial crisis in which hundreds of financial institutions closed, home values fell by a quarter, output fell by 4%, unemployment rose to 10% and the economy needed years to recover.
“Fiscal irresponsibility has contributed to financial crises around the world several times, including in Argentina in 1998, Greece and others in Europe around 2009, and Brazil in 2016,” the CRFB noted, warning that while financial markets appear capable of supporting the current level of US debt, markets are rarely predictable, and investor confidence can change quickly.
2. Inflation Crisis: To avoid default or bank failures, the Federal Reserve could be pressured to “monetize” the debt—printing money to buy Treasury bonds. This could cause spiraling inflation, eroding savings and purchasing power, similar to the historical crises of Argentina or the Weimar Republic.
Hedge fund billionaire Ray Dalio has consistently warned, including in this week’s conversation with wealth in Davos, Switzerland, on the risks of the US monetizing its debt. When it comes to the U.S. economy, Dalio has long been a vocal critic of the rapidly growing national debt and told Fortune that he now believes the crisis is so great that we’re dealing with a “breakdown of the monetary order,” posing the grim choice: “Do you print money or let a debt crisis happen?”
3. Currency crisis: Reckless fiscal policy could lead to a sharp depreciation of the US dollar, undermining its status as the world’s dominant reserve currency. A weakened dollar would erode American geopolitical power and make imports much more expensive.
4. Implicit Crisis: Although considered “highly unlikely,” a default on interest or principal on the roughly $31 trillion of debt held by the public would be “catastrophic.” A default would freeze global credit markets, crash stock markets and likely plunge the world into a deep recession.
A number of countries have historically defaulted on debt, including Mexico, Brazil, Peru and Argentina in Latin America and Russia in the late 1990s. Argentina is still dealing with the consequences of defaulting after taking a controversial $20 billion line of credit from the U.S. in 2025, though it repaid it in full shortly thereafter, according to Treasury Secretary Scott Bessent.
5. Gradual crisis: Perhaps the most insidious scenario is a slow decline, where no acute event occurs. Conversely, high debt crowds out investment, slowing growth for decades. Congressional Budget Office (CBO) models suggest that this trajectory could leave real income per person 8% lower by 2050 than it would otherwise be.
Japan is the classic example of a gradual crisis, with the CRFB noting that it sustained extremely high levels of debt for several decades, avoiding an acute crisis, but with real GDP growing by only 10% (0.5% per year) over the past two decades. Société Générale global strategist Albert Edwards, a self-described “permabear,” has long advocated an “Ice Age” theory of financial markets in which every developed country suffers a fate similar to Japan’s. Edwards said wealth in November 2025, the ice age theory held until 25 years ago when the dotcom bubble burst, at which point the relationship between the economy and asset prices “broke” as the Fed began “throwing money” into the resulting recession and low growth through quantitative easing. This is exactly the 25-year period that the CRFB warns is building towards an inevitable crisis of some sort. The CRFB noted that Western European economies such as France and Britain are showing signs of a gradual crisis, with slow growth and inflexible fiscal policy driven in part by high borrowing rates.
The report noted that a crisis does not require a single “tipping point” but can be triggered by various catalysts, including a recession, a “poor” Treasury tender in which demand for US debt weakens or a breach of the debt limit.
The warning comes as the fiscal situation worsens. Interest costs on the debt rose to about $1 trillion last year, eating up nearly 18 percent of federal revenue — an amount comparable to the entire Medicare budget. “With debt at 100 percent of GDP,” the report argued, “the U.S. has less fiscal room than at any time in history in the event of another war, pandemic, or recession.”
This story was originally featured on Fortune.com
