In July 2025, Congress narrowly avoided catastrophe by raising the debt ceiling to $41.1 trillion through the One Big Beautiful Bill Act. The reprieve was temporary. With the Congressional Budget Office projecting the new limit will be reached by late 2026, and extraordinary measures exhausted by spring 2027, we are merely counting down to the next crisis. Only this time, the fiscal arithmetic is considerably worse, and the geopolitical stakes immeasurably higher.

Consider the trajectory. Federal debt held by the public now stands at approximately 100% of GDP—a peacetime record. The One Big Beautiful Bill Act, despite its optimistic nomenclature, will add an estimated $3.4 trillion to deficits over the coming decade, rising to $5.5 trillion if its temporary provisions are made permanent. Interest payments on federal debt now exceed defence spending. By 2035, the CBO projects debt will reach 118% of GDP, surpassing the previous high-water mark of 106% set in 1946—when America was demobilising from history’s largest war.

Moody’s recognised this reality in May 2025 when it downgraded America’s credit rating from Aaa to Aa1, making it the last of the three major rating agencies to strip the United States of its pristine credit status. The agency cited persistent annual fiscal deficits approaching 9% of GDP and growing interest costs consuming an ever-larger share of government revenue. In October 2025, the European agency Scope followed suit, downgrading from AA to AA−, explicitly citing “sustained deterioration in public finances and a weakening of governance standards.”

The credit default swap market—that arcane corner of finance where sophisticated investors bet on sovereign failure—tells a revealing story. Analysis from the Federal Reserve Bank of Chicago shows that during the 2011 and 2013 debt ceiling standoffs, CDS pricing implied default risks of 4-6%. In 2025, even with unified Republican control of Congress obviating the need for bipartisan negotiation, the market priced in approximately 1% default risk.

One percent may seem trivial. It is not. For the issuer of the world’s reserve currency, any measurable probability of default represents a fundamental breach of the implicit social contract that underpins global finance. As David Kotok of Cumberland Advisors observed, when........

© The Times of Israel (Blogs)