Why the Next U.S. Recession Could Trigger a Debt Crisis

For decades, tax revenue has stayed steady at about 16–17% of GDP, while federal spending has nearly doubled as a share of the economy, climbing to 22–23% of ￰0￱ imbalance already leaves the ￰1￱ a 7% budget deficit even without a ￰2￱ problem becomes explosive once recession dynamics kick ￰3￱ the economy contracts, government revenue typically drops around 20%. That would cut today’s $5 trillion revenue base down to roughly $3.9 ￰4￱ the same time, automatic programs like unemployment benefits and discretionary stimulus push spending higher—potentially from $7.1 trillion to over $9 trillion. Combined, this means a deficit of $5+ trillion, or nearly 18% of GDP , a level unseen in ￰5￱ real danger is how debt interacts with ￰6￱ the 1980s, each new dollar of debt produced $3 of GDP.

Now, it generates just $0.37, and the return keeps ￰7￱ trillions in new debt during a recession could choke growth further, while rising borrowing needs might drive bond yields and interest costs sharply ￰8￱ 1% rise in yields would add another $370 billion in annual interest, pushing deficits closer to $7 ￰9￱ creates a vicious cycle: falling GDP, collapsing tax revenue, soaring spending, and rising borrowing ￰10￱ markets lose faith in U. S. debt, the dollar could weaken and the Federal Reserve may be forced to step in with massive money-printing—risking inflation and financial instability on a global scale.