America is now spending more to service its past than to invest in its future. That is not a metaphor. It is in the federal budget.

For decades, the United States has financed its priorities through debt. This includes wars, tax cuts, aging populations, and economic shocks. This habit was enabled by a rare alignment of forces: the dollar's status as the global reserve currency, investor faith in American institutions, and three decades of disinflation. These conditions allowed Washington to borrow widely and cheaply, often without consequence.

That equation is now changing. In 2024, the U.S. federal debt held by the public is projected to reach 97.8 percent of GDP, according to the Congressional Budget Office. This is not a record, but it is the highest peacetime ratio in modern history. More troubling is the cost of servicing that debt. Net interest payments will consume 3.1 percent of GDP this year, more than triple the burden from a decade ago and already larger than federal education spending. Within a few years, interest will exceed defense spending. If current policies remain in place, debt is forecast to exceed 220 percent of GDP by 2050, with net interest outlays surpassing 6 percent of output. At that point, the U.S. would be spending more to service past obligations than to govern in the present.

These are not tail risks. They are baseline projections that assume no major wars, no financial crises, and a gradual return to historically average interest rates. And while the U.S. still enjoys the world's deepest capital markets and central monetary control, those strengths are not invulnerable.

Europe offers a cautionary parallel. Following the global financial crisis, several eurozone countries, notably Greece, Italy, and Portugal, faced a dramatic repricing of their sovereign debt. Markets once treated their bonds as interchangeable with German bunds. When that perception cracked, yields soared. In 2010, Greek ten-year bond yields climbed from 5 percent to more than 35 percent. Emergency rescues followed, but only alongside austerity, capital flight, and political fragmentation.

The U.S. is not Greece. It issues debt in its own currency and remains the anchor of global finance. But no country, however large, is immune to market dynamics forever. In 2023, Fitch downgraded U.S. sovereign debt, citing governance risks and fiscal slippage. In 2025, Moody's followed suit, issuing a long-anticipated downgrade that reflected rising interest burdens and the continued absence of a credible fiscal strategy. The move was dismissed by some as symbolic. Yet markets have begun to reflect discomfort: long-term yields have remained elevated despite easing inflation. The term premium, or the compensation investors demand for holding longer dated debt, is quietly rising.

This shift will not only affect bond markets. It is likely to weigh on equities as well. A higher cost of capital tends to compress price to earnings multiples. For the past decade, ultra-low rates supported elevated valuations, even amid modest earnings growth. That support is vanishing. As interest rates revert toward historical averages, the market's willingness to pay 20 or more times forward earnings will diminish.

The implications for investors are far reaching. Traditional 60-40 portfolios that relied on long duration Treasuries for ballast must be reconsidered. Investors will need to manage interest rate risk more actively, favor shorter maturities, and seek inflation linked or real return assets. Exposure to fiscally stronger sovereigns, including certain emerging markets, may offer more stability than once expected.

The fiscal consequences are deeper still. A government spending six percent of its economy on interest has little room left for public investment or emergency response. That level, projected within two decades, may mark the tipping point. There is no single trigger. Rather, it is a convergence of factors: net interest approaching or exceeding 6 percent of GDP; interest consuming 20 to 25 percent of federal revenue, as it did before the deficit reforms of the 1990s; rising term premiums in Treasury yields that reflect discomfort with long term fiscal credibility; and growing foreign reluctance to absorb additional U.S. debt, particularly from major holders like China and Japan. Overlaying this with political paralysis or an external shock, a debt ceiling standoff, a war, or financial instability, and the market response may shift from patient to punitive. The tipping point is not a default, but a repricing of risk. And once it begins, it feeds on itself. That level of debt service constrains tax policy, limits infrastructure renewal, and threatens the defense budget. It is a drag not only on public finances, but on strategic capacity.

The United Kingdom learned this lesson in 2022, when a modestly expansionary budget proposal sparked a gilt market selloff and forced the Bank of England into emergency intervention. The episode was brief, but instructive. Market trust, once lost, is costly to regain.

The United States still possesses immense advantages: economic scale, institutional depth, technological leadership. But its fiscal trajectory is eroding that foundation. This is not about alarm. It is about recognition. Compound interest is no longer a neutral feature of the financial landscape. It is a fiscal undertow that pulls steadily and silently, until it is no longer ignorable. It is a political force.

As Herbert Stein, economic adviser to Presidents Nixon and Ford, once put it: "If something cannot go on forever, it will stop." The American debt trajectory cannot go on forever. And when it stops, it will not pause for debate.

Sources: CBO.org, BCA Research