Every few years the US government runs out of money. It’s not that America is broke, it’s that Congress has again reached the debt ceiling, the legal cap on how much the government can borrow. Both sides know it will eventually be lifted, but they use the process as leverage. The result is political theatre with real-world consequences.
The US spends far more than it earns. The budget deficit this year is roughly $2 trillion, with $5 trillion of income and $7 trillion of expenses. That shortfall adds to a national debt now above $36 trillion. Before the country can even start paying that back, it would need to balance the budget through higher taxes or lower spending. Neither is politically possible. Instead, the debt ceiling has been raised or suspended more than a hundred times since 1960.
Shutdowns happen when negotiations stall, and funding expires. Workers are stood down, services freeze, and government departments grind to a halt until a deal is reached. Economically, the damage is limited. Each week of shutdown shaves about 0.1% off GDP, but growth usually rebounds once back pay and spending resume. Markets barely react because they’ve seen it all before. The real risk isn’t the short-term disruption, it’s the erosion of confidence in the system itself.
That confidence used to be rock solid. US Treasuries are considered the safest asset in the world. But the world is changing. Governments everywhere are now competing for capital as debt levels rise and interest costs bite. When too many borrowers chase too little capital, not everyone will be funded on favourable terms. Although Fitch downgraded the US last year over fiscal governance concerns, many other nations face a similar problem. Bond yields show investors are quietly recalibrating the idea of “risk-free.”
What’s different this time is the intent behind the shutdown. Trump and his team have reportedly seen it not just as a negotiating tactic, but as a way to reshape the federal workforce itself. By letting agencies go unfunded and contracts lapse, they could use fiscal gridlock to force structural change across government. To his supporters it’s long-overdue discipline after years of bureaucratic expansion. To critics it hollows out the machinery that keeps the world’s largest economy running. Either way, it introduces a new kind of uncertainty: weaponising dysfunction for reform.
Viewed in isolation, a government shutdown doesn’t matter much. Viewed as a pattern, it matters a lot. It reflects a system where short-term politics consistently override long-term responsibility. America can still borrow easily because of its size, its credibility, and the dollar’s dominance. But every cycle of brinkmanship chips away at that credibility.
The rest of the world is watching. Many advanced economies now face the same problem of too much debt, too little discipline, and no political will to fix it. For now, markets still reward inertia because no one wants to believe the system could crack. The question isn’t whether the US can keep borrowing, but how markets will price that privilege in the years ahead.
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