Global Debt Crises Foreshadow a Perilous Path for the United States

In July 2026, the U.S. national debt reached $39.7 trillion, putting the debt over 100 percent of GDP. For the first time since World War II, the United States owes more to creditors than it produces in a year. Tax cuts, rising pension costs, and healthcare spending have all contributed.

The rising debt is only part of the issue. As the dollar is the world’s reserve currency, high global demand for U.S. bonds keeps their interest rates low—a phenomenon known as exorbitant privilege. Traditionally, those low rates have meant that the United States takes on more debt at lower costs than other countries, which makes large deficits affordable and gives the government more room to borrow during downturns. But recent episodes suggest this benefit is not as ironclad as it has traditionally seemed, with yields rising instead of falling during moments of uncertainty.

Despite those signs of distress, policymakers have been slow to act, and interest payments on the national dept have ballooned to the second largest item in the U.S. budget behind Social Security. While the economic costs alone are staggering, the political consequences can be equally severe.

The United States is not alone in facing a debt crisis. Global sovereign debt reached a high of $348 trillion in 2025, and countries around the world are reeling from the political and social costs. For a snapshot of how debt politics could play out, look to Senegal.

In the 2024 Senegalese elections, a youth-led pro-democracy coalition soundly defeated the party of Senegal’s increasingly authoritarian president. When the new administration took power, however, they uncovered $13 billion worth of debt hidden by the previous government, placing debt at 132 percent of GDP.

Senegalese President Bassirou Diomaye Faye turned to the International Monetary Fund (IMF) for debt restructuring, but the prime minister and leader of the ruling party, Ousmane Sonko, called IMF-led restructuring a “disgrace.” In May 2026, Faye fired Sonko, but the former PM’s popularity led to his election as speaker of parliament mere days later, exposing further divisions in the governing party. While negotiations continue with the IMF, Faye has raised taxes and implemented austerity measures to help bring down debt.

Protests against the economic situation have raged on and off since 2024, with demonstrations over unpaid financial aid to university students in February 2025 resulting in a student’s death. The chaos, division, and unrest in Senegal show that when debt drives politics, especially in developing countries, it can spell disaster.

Things don’t get better in Asia, either. Indonesia has historically touted a robust economy, with growth averaging around 4.2 percent a year over the past decade. But rising energy costs and President Prabowo Subianto’s expensive populist policies have slowed growth and widened the deficit just shy of the 3 percent limit.

Rather than implementing fiscal consolidation, the Indonesian government may be fudging the numbers. A group of Indonesian economists recently confronted the government over seemingly manipulated GDP growth statistics. Fraud of this sort would be a severe blow to Indonesia’s institutional integrity, which was built through its commitment to strict fiscal rules and institutional integrity after the 1998 Asian Financial Crisis. Indonesia’s crumbling institutions have contributed to its main stock index losing over 25 percent of its value since the start of 2026, making it the world’s worst-performing equity market.

Similar incidents could threaten the American economy. In 2025, President Donald Trump fired the head of the Bureau of Labor Statistics after the publication of a lackluster jobs report he called “rigged.“ Although the market reaction was muted, analysis found the incident cost the U.S. economy $20 billion due to lost investment and heightened uncertainty, and similar incidents could cause investors to lose faith in the American economy.

Debt politics is not just a problem in emerging markets. British policymaking for the past half decade has been constrained by a group known as the bond vigilantes—institutional investors who buy and sell bonds to protest or reward government policy.  

When Prime Minister Liz Truss proposed unfunded tax cuts in 2022, the vigilantes struck, selling bonds and spiking yields 0.5 percentage points in one day. The market reaction led Truss’s own Conservative Party to force her out as PM after only forty-five days in office. The vigilantes still have considerable influence over political decisions, with the new prime minister, Andy Burnham, reportedly factoring bond market reactions into his policy platform.

The United States, despite its exorbitant privilege, is not immune to the bond vigilantes. When President Trump announced his Liberation Day tariffs on April 2, 2025, yields on two-year Treasury notes saw their sharpest rise since 2009, pressuring the administration to pause the tariffs.

The United States has generally avoided debt politics thanks to the global reliance on dollars and treasuries. However, as the Liberation Day incident shows, policy choices still threaten to slide the U.S. debt from an exorbitant privilege toward an exorbitant burden. To head off this threat, two ideas can put public finances on a surer footing.

First, the United States could raise more tax revenue. While not the most politically popular proposal, Americans already pay lower taxes than most of their foreign peers, with tax revenue totaling 27 percent of U.S. GDP, below the 34 percent average among Organization for Economic Cooperation and Development members. An easy target is tax expenditures—the various breaks, exemptions, and special treatments in the tax code—which cost $2.3 trillion annually. For instance, estimates show capital gains tax reform alone could net roughly $1.8 trillion over the next ten years.

Second, somewhat counterintuitively, the United States could spend more, but more effectively, to solve its debt problem. That would mean investing in universal childcare, paid leave, and public health insurance. Those programs pay dividends by bolstering productivity, economic growth, and living standards so the country can grow its way out of debt.

The specter of debt is real, but its disastrous consequences have not yet befallen the United States. By heeding the warnings of Senegal, Indonesia, and the United Kingdom, the United States can embrace responsible, fair economic policy, and perhaps hand the next generation an exorbitant privilege.