CNBC Special Report: America's Deficit Reckoning 7/7/25

SPEAKER_1 (0:00)

Fidelity Trading Dashboard brings live data, news and charts into one screen, so you can build and place trades better. Start for free at fidelity.com/tradingdashboard. Investing involves risk, including risk of loss. Fidelity Broker Services LLC, member NYSE SIPC.

SPEAKER_2 (0:16)

Introducing the new Dell AIPC, powered by the Intel Core Ultra Processor. It helps do your busy work for you, so you can fast forward through editing images, designing presentations, generating code, debugging code, summarizing meeting notes, finding files, managing your schedule, responding to Jim's long emails, leaving all the time in the world for the things you actually want to do. No offense, Jim. Get a new Dell AIPC, starting at 699.99 at dell.com/ai-pc. How those ahead, stay ahead.

Leslie Picker (0:48)

There's no shortage of voices sounding the alarm about the national debt.

Dan Iveson (0:52)

Our fiscal situation is a 350 pound, two pack a day smoker on the ICU table.

SPEAKER_5 (1:00)

The US federal budget is on an unsustainable path.

Ray Dalio (1:03)

We're going to be broke really quickly unless we get serious about dealing with our spending issues.

SPEAKER_7 (1:12)

I do believe that fiscal policy needs to be put on a sustainable course.

Leslie Picker (1:17)

The US's borrowing levels are currently the same size as the entire economy and are expected to skyrocket from here. That's because America spends way more than it brings in and then borrows to cover that deficit. And there's plenty of debate on how to close that gap, raise taxes, cut spending, a combination of both. No doubt, any solution demands hard choices. But what are the actual consequences if the deficit gets out of control?

Maya McGinnis (1:44)

I often liken this to the invisible dog fence, where you really don't want to hit it, but you won't know until you do. And it seems like the US is almost intent on finding out where that tipping point is.

Leslie Picker (1:55)

That's Maya McGinnis of the Committee for a Responsible Federal Budget. Business leaders, politicians, economists, investors, almost all share a common fear that the US is playing with fire when it comes to its deficit, but less clear what the actual ramifications look like if we reach that tipping point. This is CNBC's goal here to explore not how to fix the deficit, but rather what happens if we don't. Over the course of five months, we interviewed a dozen people for the project and even more off the record. We surveyed everyone from former Treasury Secretary Robert Rubin to PIMCO CIO Dan Iveson to former Chairman of the Joint Chiefs of Staff Michael Mullen about what they think will happen if the deficit gets out of control. We dug into the empirical research and the history of how we got here. We took the pulse of a Gen Z-er who is among the younger generations that will likely face this issue head on if it's not reconciled soon. To begin, we'll share with you the backdrop and context of our debt. Then we'll tackle the potential fallout related to three key areas. The markets, the US economy and international relations. I'm Leslie Picker from CNBC and this is America's Deficit Reckoning.

The U.S.'s borrowing levels are about the same size as the entire economy. In just four years, the ratio is expected to exceed the historical peak. It reached right after World War II and skyrocketed from there. But debt in America is nothing new. It has been central since the beginning. In 1776, a committee of founders secured funding for the Revolutionary War by borrowing from France and the Netherlands. The first US. Treasury Secretary, Alexander Hamilton, said, quote, a national debt, if it is not excessive, will be to us a national blessing. The War of 1812, the Mexican-American War, the Civil War, the World Wars, they were each funded at least in part through public debt. But up until 1969, the US at least aimed for budget surpluses, especially when there wasn't a war or economic crisis or other type of emergency. That changed under President Richard Nixon when deficit spending became the mainstay. The 70s were ripe with volatility, the deficit in part to blame, and yet the government kept running up its tab over the next few decades.

Robert Rubin (4:19)

1990, 1991 were periods when there was a lot of uncertainty about our economy. I remember I was at that time co-senior partner to Goldman Sachs, and a lot of our clients were very uncertain of what was going to happen, and deficits played a big role in that.

Leslie Picker (4:32)

This is Robert Rubin. He advised Bill Clinton on his presidential campaign, the transition, and later joined the administration. He ultimately served as the 70th Treasury Secretary. Rubin says the deficit was always a key focus.