# America’s Economy Is Living on Borrowed Time

The American economy appears healthy because nearly every institution in the country has learned how to postpone consequences.

Consumers borrow to maintain living standards their wages can no longer support. The federal government borrows trillions to sustain spending it refuses either to reduce or honestly finance. Corporations are wagering historic sums on artificial intelligence. Wealthy households keep spending because their stock portfolios and property values continue rising. Investors remain calm because they believe the Federal Reserve and Congress will rescue them from any serious collapse.

Each of these forces is helping hold up the economy.

Each is also becoming dangerously unstable.

The United States is not necessarily approaching an immediate depression or a formal government default. Economic crises rarely announce themselves with such courtesy. The greater danger is an economy becoming increasingly dependent on debt, speculation, concentrated wealth and political intervention merely to produce ordinary growth.

America is not becoming stronger. It is becoming more dependent on the continuation of favorable conditions it cannot guarantee.

Four technology companies, Amazon, Microsoft, Alphabet and Meta, are spending extraordinary amounts on artificial-intelligence infrastructure. Their money is building data centers, buying processors, expanding power capacity and supporting construction across the country.

Artificial intelligence may eventually justify this investment. It may become as transformative as electricity, automobiles or the internet.

Transformative technology, however, does not guarantee rational investment.

Railroads revolutionized transportation while bankrupting investors. The internet changed civilization while producing the dot-com collapse. A technology can transform the world and still become the center of a speculative mania.

The danger is not merely that artificial intelligence might fail. The greater danger is that too much of the economy now depends on its uninterrupted success.

Corporate investment depends on it. Stock-market valuations depend on it. Much of the wealth held by affluent households depends on it. Consumer confidence increasingly depends on it. Government tax receipts from capital gains and corporate profits depend partly on it.

A decline in artificial-intelligence spending would therefore not remain confined to Silicon Valley. It would move through financial markets, consumer spending, employment and government revenue.

The economy has placed several major supports on the same narrow foundation.

Consumer spending presents the second vulnerability. A growing share of American consumption is being driven by the wealthiest households. These families own most stocks, valuable real estate and other appreciating assets. When markets rise, they feel wealthier and spend more freely.

Their spending supports restaurants, travel, luxury goods, automobiles, construction and countless service industries.

But this so-called wealth effect works in both directions.

When portfolios decline, wealthy households do not need to become poor before changing their behavior. They merely need to feel less secure. Vacations are postponed. Renovations are canceled. Vehicles are kept another year. Discretionary purchases disappear.

An economy heavily dependent on affluent consumers is therefore also heavily dependent on rising asset prices.

This is not durable prosperity. It is consumer confidence resting on unrealized investment gains.

Most Americans occupy a far more precarious position. Their wages have not kept pace with the combined cost of housing, insurance, food, medical care, transportation and debt service. Many have filled the gap with credit cards, automobile loans and installment-payment services.

Credit allows households to conceal financial deterioration for a time. It does not reverse it.

A family can maintain its standard of living by borrowing only until the credit limit is reached, the interest payment becomes unbearable or employment is interrupted. At some point, yesterday’s purchases begin consuming tomorrow’s income.

Millions of Americans are approaching that point.

The economy therefore relies on two different and equally unstable forms of consumer spending. The wealthy spend because their assets keep rising. Everyone else increasingly spends by borrowing.

One group depends on market optimism. The other depends on available credit.

Neither arrangement can be mistaken for broadly shared financial strength.

The federal government has adopted the same strategy on an almost unimaginable scale. Washington spends vastly more than it collects and borrows the difference year after year.

Neither political party has seriously confronted the imbalance.

Republicans demand lower taxes without accepting the spending reductions required to make those tax cuts sustainable. Democrats defend expensive federal programs without consistently raising enough revenue to finance them. Both parties assure voters that economic growth will eventually solve the problem.

Economic growth has become the political equivalent of divine intervention. Everyone invokes it. Nobody explains why it should arrive in sufficient strength to rescue decades of irresponsible promises.

The result is government by avoidance.

Borrow now. Refinance later. Accuse the opposing party. Leave the invoice to the next Congress and the next generation.

For decades, the United States could practice this irresponsibility because Treasury securities were considered the safest investment in the world. Foreign governments needed dollar reserves. Banks, pension funds and insurance companies needed Treasury bonds. Investors fleeing global crises moved their money into American debt.

Washington began treating this privilege as permanent.

It is not permanent.

The bond market does not need to refuse to lend to the United States before producing a fiscal crisis. Investors only need to demand higher interest rates as compensation for inflation, excessive borrowing, political dysfunction and declining confidence.

This is where the margin for error is shrinking.

At interest rates near five percent, refinancing a national debt measured in tens of trillions becomes extraordinarily expensive. At six or seven percent, the cost begins consuming the federal budget from within.

Each new Treasury bond refinances previous spending at a higher rate. Higher interest costs enlarge the deficit. A larger deficit requires additional borrowing. Greater borrowing increases the supply of bonds the market must absorb. Investors then demand still higher yields.

Debt begins producing more debt.

The danger is not necessarily a sudden announcement that the United States will stop paying its creditors. America borrows in a currency it controls and can create dollars when necessary.

But creating dollars does not create purchasing power.

A government can technically avoid missing a payment while still defaulting economically through inflation, currency depreciation or financial repression. Creditors may receive every dollar promised and discover those dollars are worth considerably less.

Default can therefore arrive without a missed check.

It can arrive when inflation erodes the debt, when the Federal Reserve is pressured to suppress interest rates, when taxes are increased solely to satisfy creditors or when public programs are gutted because interest payments have become the government’s first obligation.

At that point, the bond market begins dictating national policy.

Congress may continue debating defense, infrastructure, health care and Social Security, but every program will compete with the cost of financing decisions made years earlier. The government’s first responsibility will no longer be governing the country. It will be maintaining the confidence of its creditors.

The United States may continue paying its debts. The more disturbing question is what will remain after it does.

Dollar reserve status has allowed America to postpone this reckoning longer than almost any other nation could. The world needs dollars for trade, reserves and financial transactions. This creates sustained demand for American currency and Treasury securities.

Yet reserve status is not a birthright. It rests on confidence in American institutions, laws, markets and political stability.

Every manufactured debt-ceiling confrontation weakens that confidence. Every threat to interfere with the Federal Reserve weakens it further. Every arbitrary trade policy, political attack on contractual obligations or suggestion that government debt might be manipulated teaches foreign investors to consider alternatives.

The dollar will not lose its position overnight. Monetary power usually erodes gradually. Other countries diversify reserves, build alternative payment systems and conduct more trade outside the dominant currency.

One day, the former financial power realizes the world has been preparing for its decline while its politicians were still declaring supremacy.

The final support holding up this economy is the belief that government will always rescue financial markets.

For more than fifteen years, investors have been conditioned to expect intervention whenever markets suffer a serious decline. Interest rates will be reduced. Emergency lending will be created. Congress will approve another rescue package. The Federal Reserve will provide liquidity.

Losses will be socialized. Gains will remain private.

Markets have not concluded that risk has disappeared. They have concluded that the government will absorb it.

This belief encourages greater speculation, higher valuations and more debt. Investors take risks they might otherwise avoid because they expect public institutions to protect them from the consequences.

Every rescue therefore helps create the need for the next rescue.

The entire economic structure has become circular.

Artificial-intelligence spending supports economic growth. Technology stocks support the wealth of affluent consumers. Affluent consumers support corporate earnings. Household borrowing supports broader consumption. Federal deficits support total demand. Dollar dominance supports government borrowing. Expectations of government rescue support the stock and bond markets.

Each support depends on the others remaining intact.

If technology investment slows, stock prices may fall. Falling stocks weaken affluent spending. Reduced spending damages corporate profits and employment. Job losses increase household defaults. Falling tax receipts enlarge federal deficits. Larger deficits require more Treasury borrowing. Greater borrowing pushes interest rates higher. Higher rates weaken businesses, consumers and the government simultaneously.

No one can know precisely where the break will begin.

It may start with disappointing artificial-intelligence returns, a stock-market correction, consumer credit losses, an unsuccessful Treasury auction, an energy shock or another international crisis.

The timing cannot be predicted with certainty. The underlying direction is much clearer.

America has built an economy increasingly sustained by borrowing, rising asset prices, concentrated corporate investment and faith in government rescue. None of these supports is unlimited.

A nation cannot borrow its way into solvency. It cannot speculate its way into shared prosperity. It cannot print its way out of every consequence or assume creditors will finance political cowardice forever.

The United States is not yet facing inevitable collapse.

It is facing something political leaders find easier to ignore: a steadily narrowing margin for avoiding one.

The economy still looks strong because the bills have not yet come due.

They have not disappeared.