US debt spiral
Frankfurt (dpa) — The United States’ national debt could rise to dangerous levels due in part to President Donald Trump’s tax plans, Germany’s state-owned KfW investment and development bank warned on Friday.
The KfW said it is conceivable for the debt ratio to climb from around 120% to more than 170% of economic output within 10 years.
The KfW warned of a tipping point at which investors might lose confidence in the US.
“Without countermeasures such as tax increases or spending cuts, the US could enter a far bigger debt spiral than previously assumed,” the bank wrote in a study.
Proposals such as Trump’s “One Big Beautiful Bill Act,” which includes permanent tax cuts and still requires Senate approval, are likely to further increase the structural deficit. International confidence in the US economy is at stake, the bank warns.
Trump’s costly tax plans
Even if tax cuts stimulate the economy in the short term, they carry the long-term risk of “reaching a tipping point for US debt sustainability,” the KfW warns.
“Should market confidence wane, capital outflows, rising risk premiums and a dangerous interest-debt spiral could be set in motion,” writes chief economist Dirk Schumacher.
The current US debt ratio, at just under 94%, is significantly above the international average. By comparison, Germany was indebted by around 63% of its gross domestic product in 2024.
Confidence in the US financial markets is already shaken. The dollar has lost significant value, with the euro reaching its highest level since September 2021 on Thursday. Trump’s chaotic trade policy is considered a major cause.
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