Why 60 trillion dollars of US debt does not matter (and what happens when it starts to)

Every few months, the same headline. “The US is on the brink of bankruptcy!” Or my favourite: “A debt bomb is ticking beneath the world economy!”

38 trillion dollars. Mathematically impossible to repay!

And then? Nothing. The dollar does not collapse. America does not declare bankruptcy. The world keeps turning.

Why?

Because the people shouting about the size of the debt do not understand how all this works.

Debt is not paid off. Debt dissolves.

Bear with me.

You have a mortgage. 500,000 dollars. You pay 2,500 a month, and it hurts.

Now imagine that in 15 years you earn three times as much — but the payment has stayed the same. Suddenly, that 2,500? No problem. Not because you have repaid the principal. Because the ratio between your debt and your income has changed.

That is exactly what the US government does. Just on a bigger scale. And with one crucial trick that most people overlook.

How 20 trillion “disappears” without a single dollar being repaid

Basic maths. Boring, I know. But important.

2024:

• GDP: 27 trillion dollars
• Debt: 38 trillion dollars (140% of GDP)

2038 (projection):

• GDP: 54 trillion dollars (at 5% annual growth — real growth plus inflation)
• Debt: 60 trillion dollars
• Ratio: 111% of GDP

See what happened? Debt grew by 22 trillion. But the ratio improved. The government looks more responsible. Even though it borrowed more than ever before.

And here is the real trick: that 60 trillion in 2038, after 14 years of inflation, may have the purchasing power of 39 trillion in today’s dollars. The government owes more in nominal terms. In real terms? Less.

Who paid the difference?

Everyone holding dollars.

Financial repression — a nice name for quiet theft

Economists call it financial repression. It sounds technical. It is not.

Here is how it works:

The government borrows at artificially low rates. The Federal Reserve buys government bonds with money it creates from nothing. More demand, higher bond prices, lower interest rates. Simple supply and demand — just manipulated.

Inflation runs higher than the returns on your savings. You have 100,000 dollars in an account paying 2.5% interest. Inflation is 4.5%. Your real return is minus 2% a year. After ten years, you nominally have 128,000 dollars. It buys what 85,000 buys today. You have become poorer while your account balance grew. Actually rather ingenious. And rather infuriating too.

Regulation forces institutions to hold government bonds. Pension funds, insurers, banks — all are required to hold government debt in their portfolios. It does not matter whether it is a bad deal. They have to buy. A captive market.

The result? Wealth flows — quietly, invisibly, mathematically — from savers to the government. No tax increases. No spending cuts. No unpopular reforms. Just a slow erosion of purchasing power that most people never notice.

Nothing new

Between 1945 and 1970, the US reduced its debt from 106% of GDP to 37%. Not by paying it off. By doing exactly this: capping interest rates, letting inflation run, forcing institutions to hold government bonds.

Twenty-five years. Two thirds of the debt burden gone. Without a single dollar of principal being repaid.

The same thing is happening now. Just with better tools and better PR.

So there is no problem?

There is a problem. But it is not the one most people think it is.

This whole mechanism works on one condition: the dollar must remain the world’s reserve currency.

Why does that matter so much?

Endless demand for dollars. When your currency is the global reserve, everyone needs it. International trade, central-bank foreign exchange reserves, a safe haven in crises. America can “print” dollars, and the world absorbs them. The value does not immediately collapse. A magic trick that only works for a reserve currency.

Foreign creditors are trapped. China holds 850 billion in US bonds. Japan holds 1.1 trillion. They know they are losing money. What can they do about it? A massive sell-off would collapse the bond market, send interest rates up, and cost them even more. Hostages to a system they helped build — although, honestly, they benefited from it too. For a while.

There is no alternative. The euro has problems. The yuan is not convertible. Gold is not practical for modern trade. Until something credible emerges, the dollar remains the default choice. Even though everyone knows it is slowly losing value.

What would break this?

US debt becomes a real problem when:

1. Trust in the dollar collapses — hyperinflation, political instability, something that sends everyone running for the exits at once
2. A credible alternative emerges — a commodity-backed digital currency, perhaps. A BRICS currency bloc, perhaps. Something.
3. Foreign creditors coordinate their exit — which means accepting huge short-term losses for long-term goals. Unlikely. But not impossible.

Until one of these happens? The US can carry on. 50 trillion, 60 trillion, 80 trillion. The number on its own means nothing.

What does this mean for you?

If you understand how this works, you can act accordingly:

Holding cash for the long term means losing. Not dramatically. Not visibly. But certainly. 3–5% of purchasing power a year, gone. Your savings account is a slow leak.

Debt can be your friend. It sounds backwards, I know. But if you have a fixed-rate mortgage and inflation is rising, you repay it with “cheaper” money. The same trick the government uses — just on a smaller scale.

Assets that cannot be printed hold their value. Property. Shares. Commodities. Anything that is more than a promise of future dollars.

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US debt is not a ticking time bomb. It is a slow, managed transfer of wealth. From savers to consumers. From the private sector to the government. From foreign creditors to the American state.

And it works. As long as the world trusts the dollar.

So the question is not “When will America go bankrupt?”

Completely the wrong question.

The right one is: “How much longer will the world keep playing this game?”