The Debt Can Is Getting Harder To Kick
Timothy Nash, Bob Thomas, George Lang, & Tom Rastin

In the book When We Are Free, an anthology published by Northwood University Press with a foreword by Milton Friedman, economic historian Dr. Lawrence W. Reed contributed a chapter titled The Fall of Rome and Modern Parallels.Reed examines how the Roman Empire collapsed and draws striking comparisons to the fiscal habits of modern governments.

His warning is worth revisiting today.

In the United States, federal law does not allow states to declare bankruptcy. To prevent fiscal collapse, 49 out of 50 states operate under some form of balanced budget requirement. These rules force policymakers to make difficult decisions each year and prevent deficits from spiraling out of control.

The federal government operates very differently.

Today the U.S. national debt now totals $38.9 trillion, about 125% of GDP, while state and local debt is $3.3 trillion, under 11% of GDP. In 1900, total U.S. debt was just 7.8% of GDP, mostly held by states and local governments. Even in 1981, federal debt was roughly 36% of GDP and barely exceeded $1 trillion.

In other words, the federal government has moved from a relatively small borrower to the dominant source of public debt in the American economy.

Lessons From History

History offers many examples of nations that allowed debt and spending to grow beyond sustainable limits. The Roman Empire collapsed in 476 AD after decades of fiscal strain, inflation, and military spending. Germany’s Weimar Republic unraveled in the early twentieth century after economic instability and runaway inflation destroyed public confidence in the currency and brought Hitler to power. These events did not occur overnight; they were the result of years of postponing hard fiscal choices.

The underlying lesson is this: excessive government borrowing eventually limits economic growth, weakens currency stability, and places heavy burdens on future taxpayers.

According to the U.S. Treasury, federal spending now exceeds $7 trillion annually, with annual deficits surpassing $1.7 trillion. Meanwhile, debt per American citizen is roughly $113,000, and debt per taxpayer exceeds $350,000.

The largest federal expenditures remain familiar: Social Security, Medicare and Medicaid, and national defense. These commitments reflect important national priorities. But when spending rises faster than economic growth, deficits accumulate quickly.

Debt Is Growing at Every Level

The Federal Reserve Bank reports that total U.S. household debt reached $18.8 trillion in late 2025, driven by increases in mortgages, auto loans, credit cards, and student loans.

Even retirement savings, long viewed as a financial safety net, are increasingly being tapped for short-term emergencies. According to a recent Wall Street Journal report, hardship withdrawals from 401(k) accounts increased for six consecutive years. The most common reasons for withdrawals include avoiding eviction or foreclosure and paying medical expenses.

This trend highlights a growing financial fragility among American households. While retirement balances have reached record highs, roughly $168,000, many workers still struggle to maintain financial stability when unexpected costs arise.

At the same time, consumer borrowing continues to expand. Auto loan balances reached $1.67 trillion, credit card balances topped $1.28 trillion, and home equity borrowing has also begun rising again.

These numbers tell a broader story. Americans, like the federal government, are increasingly relying on debt to maintain current spending levels.

New Uncertainty Around Government Revenues

Tariffs were once expected to generate substantial government revenue. However, recent court rulings challenging the legality of certain tariffs have introduced uncertainty about whether those funds, estimated at roughly $130 billion, can ultimately be retained by the federal government.

If repayments are required, the federal deficit could grow even larger.

Meanwhile, geopolitical instability adds another layer of fiscal risk. Military conflicts, including tensions in the Middle East and possible extended operations in the war against Iran, can quickly increase federal defense spending. Wars historically accelerate government borrowing. Combined with rising interest costs on existing debt, these expenditures place additional pressure on federal finances.

At the same time, inflation continues to weigh on Americans. Higher interest rates increase the cost of servicing debt, reducing the financial flexibility of families and businesses alike.

A Sustainable Path Forward

The solution is not simply austerity, nor is it unlimited borrowing. The United States must pursue a balanced approach that combines fiscal restraint with economic growth.

Three steps are essential.

• First, Washington must restore spending discipline.
  The federal government does not necessarily need to adopt a strict balanced budget amendment tomorrow.  However, policymakers should establish credible long-term limits on deficit growth with town hall meetings — a possible useful tool for direct voter input, for all members of Congress and each other. Without fiscal guardrails, spending decisions become increasingly disconnected from economic reality.
• Second, the country must prioritize economic growth.
  The most effective way to reduce debt relative to GDP is to expand the economy itself. Policies that encourage innovation, entrepreneurship, workforce development, and domestic investment can help generate the productivity gains necessary to grow the tax base without raising tax rates and allowing for sound regulatory reform.
• Third, the United States should pursue strategic investment in energy and energy regulatory reform.
  Reliable and affordable energy, led by natural gas and nuclear power remains one of the most substantial drivers of economic growth. Expanding domestic energy production can strengthen national security, stabilize prices, and support industrial competitiveness.

Energy development also attracts capital investment, supports manufacturing, and creates high-paying jobs. A strong energy sector therefore plays a direct role in strengthening federal revenues while reducing economic vulnerability to global shocks.

Together, these strategies can help place the country on a more sustainable fiscal trajectory.

The Debt Can Is Becoming Un-kickable

For decades, policymakers have managed the rising federal debt by pushing tough decisions further into the future. But that strategy is becoming increasingly difficult to maintain.

Interest payments on the national debt are rising rapidly. Households are drawing down retirement savings to meet short-term needs. Consumer debt continues to climb as inflation strains family budgets. Underwater trade-ins on new automobiles, light trucks and SUVS hit a record $7,214 in late 2025, with nearly one-third of buyers owing more than their vehicle was worth, according to a recent Automotive News article.

At some point, the can simply cannot be kicked any further down the road.

America’s economic strength has been built on invention, innovation, productivity, and responsible stewardship of resources. Through fiscal discipline, encouraging growth, and investing wisely in strategic industries, the United States can maintain its economic leadership while reducing its debt burden.

The alternative, risks eroding the very economic foundation that made America prosperous in the first place.

The time to confront the debt challenge is not when a crisis leaves you no choice. It is now.

Adam Sharp has been a financial writer and Fed watcher since 2008. He is a contrarian who specializes in non-traditional assets. Adam founded and sold Early Investing, a newsletter about alternative investments. Sharp lives in Maryland with his wife, two children, and two dogs.

realclearwire.com