Thirty-five trillion dollars. That is the weight of the current US national debt. It is a number so large it has become abstract, yet for Robert DeQuadros, chief US economist at Citi, it is the primary signal of a looming fiscal reckoning.

Debt is rising faster than the economy can support. This is the core of DeQuadros’s latest warning to clients. While the US has long enjoyed the privilege of being the world’s reserve currency, the math is beginning to break. The cost of servicing that debt is no longer a rounding error in the federal budget; it is a structural drag on growth.

The Math Behind the Warning

The fiscal trajectory is clear. Federal spending continues to outpace tax revenue, and the gap is widening. DeQuadros points to the debt-to-GDP ratio as the most critical metric. It is currently hovering near 120 percent, a level historically associated with slower long-term growth and increased vulnerability to interest rate shocks.

Investors have largely ignored these warnings for years. They assumed the US could always print its way out of trouble. DeQuadros suggests that era is ending. When debt grows faster than the economy, the government must borrow more just to pay interest on what it already owes. It is a feedback loop. And it is accelerating.

Why This Time Is Different

Previous debt cycles were managed through periods of rapid growth or inflation. Today, the environment is far more rigid. The Federal Reserve is no longer suppressing rates to near zero. Higher interest rates mean the government’s borrowing costs are significantly higher than they were just three years ago.

This creates a crowding-out effect. Every dollar the Treasury spends on interest payments is a dollar that cannot be spent on infrastructure, defense, or social programs. It forces a choice. Either the government raises taxes, cuts spending, or continues to issue debt at an unsustainable pace. None of these options are politically popular. All of them carry market consequences.

Market Impact

Markets are beginning to price in this fiscal reality. The term premium on long-dated Treasuries has started to creep higher. Investors are demanding more compensation for the risk of holding US debt over the next decade. If this trend continues, the cost of capital for the entire economy will rise.

DeQuadros notes that global fiscal ratios are also deteriorating, but the US position is unique due to the sheer volume of issuance. When the world’s largest borrower faces a credibility gap, the ripple effects are global. Equities may struggle as the risk-free rate climbs. Credit spreads could widen. The safety of the 'risk-free' asset is being tested.

Key Takeaways

  • US debt-to-GDP ratios have reached levels that historically constrain long-term economic expansion.
  • Higher interest rates have transformed debt servicing from a manageable expense into a major budgetary burden.
  • Investors are increasingly demanding higher term premiums, signaling a shift in how the market views US fiscal sustainability.

What to Watch Next

The next major test for the Treasury market arrives in February, when the Congressional Budget Office releases its updated 10-year budget projections. If those numbers show the deficit widening further, expect a sharp reaction in the bond market. The question is no longer whether the debt is too high. It is whether the market will continue to fund it at these prices.

This article is for informational purposes only and does not constitute financial advice. Always consult a licensed financial advisor before making investment decisions.