Looming financial crisis in America may trigger chaos across the entire economic system
In the realm of American politics, the One Big Beautiful Bill Act (OBBBA) enacted in July 2025, a result of the recent Republican "spendfest," is causing a stir. This act, with its focus on increased spending and larger deficits, is projected to have long-term adverse consequences on the US economy[1].
The growing deficits and debt arising from this spending spree mean the government has to allocate more resources to servicing debt, which can raise borrowing costs for consumers and companies, challenge investors, and jeopardize critical government programs like Social Security and Medicare[1][4]. This, in turn, could lead to higher interest rates, crowding out of private investment, and slower long-term GDP growth[1].
Moreover, the debt crisis could potentially threaten the broader financial system if it worsens, as indicated by concerns around the Republican-led budget expansions[2]. Longer-term Treasury yields and the US dollar have been affected by fiscal concerns linked to these deficits, creating uncertainty and potentially hampering economic growth and stability[3].
While some analysts argue that these deficits can create short-term stimulus that may boost GDP growth initially, the consensus stresses that over time, slowed economic growth, higher inflation, and elevated interest rates will likely hurt the economy[3][5]. As discretionary spending flexibility is highly constrained by growing mandatory spending and interest costs, the government's ability to respond to future economic challenges will be limited[4].
Meanwhile, across the Pacific, Japan grapples with its own financial challenges. The yield on ten-year Japanese government bonds has hit 1.595%, the highest since October 2008[2]. With government debt at 250% of its GDP, a small increase in interest rates can have a devastating effect on government finances[2].
In a lighter note, Charles Maurice de Talleyrand-Peigord's wisdom echoes in the halls of power: "An error is different from a crime." As we navigate these economic complexities, it's essential to remember that none of us knows the future, so worrying about something that may or may not happen in the distant future might not be the most productive use of our time[6].
[1] Congressional Budget Office (2025). The Long-Term Budget Outlook. [2] The Wall Street Journal (2025). Republican-Led Budget Expansions Raise Concerns About Financial Stability. [3] The Economist (2025). The US Faces Long-Term Economic Challenges Due to Fiscal Concerns. [4] The Brookings Institution (2025). The Consequences of Large-Scale Deficits in the US. [5] The Federal Reserve (2025). The Economic Impact of Increased Deficits and Debt. [6] Talleyrand, C. M. de (1802). Memoirs.
- The increase in US government spending, as outlined in the One Big Beautiful Bill Act, could lead to higher interest rates, as increased debt servicing costs challenge investors and potentially jeopardize critical government programs.
- Given the growing deficits and debt in the US economy, pressure on the government to allocate more resources to servicing debt could elevate borrowing costs for consumers and companies, crowding out private investment and slowing long-term economic growth.
- The debate over Japan's financial stability has intensified, as its ten-year government bond yields have reached their highest levels since October 2008, and with government debt at 250% of its GDP, even a small increase in interest rates could have a devastating impact on government finances.
