The Politics Behind the Rising U.S. Debt

Summary

Ariana Salvatore discusses why U.S. fiscal policy is back in focus after total debt crossed $40 trillion, and why political incentives limit deficit reduction. She argues the midterms are not an immediate debt fix but can signal future policy through Social Security races and post-election fiscal fights. The most direct market implication is that Treasury bills maturing around debt-ceiling deadlines tend to cheapen relative to short-term benchmarks.

• U.S. total debt crossed $40 trillion earlier than expected, putting fiscal policy back in focus.
• The deficit is expected to stay around 6% of GDP through 2027.
• Political costs of spending cuts or tax increases reduce incentives for fiscal consolidation.
• Midterm elections are not expected to be a direct catalyst for fixing the debt trajectory.
• Social Security trust fund insolvency is projected for Q4 2032, with candidates focused on payroll tax cap changes.
• Divided government could increase fiscal noise around government funding and debt ceiling deadlines.
• Government shutdowns affect markets indirectly through delayed or lower-quality government data.
• Debt ceiling risk is most direct in Treasury bills maturing around the deadline, which cheapen relative to short-term benchmarks.