A True “Nightmare on Main Street” 

The gross national debt now stands at nearly $39 trillion and is on track, according to the Congressional Budget Office, to grow by tens of trillions more over the next decade. The annual deficit is running close to $1.9 trillion. Washington spends roughly $7 trillion a year and collects only about $5.2 trillion in revenue. The gap is not new, but its size is. 

For most Americans, these figures feel remote. They are large enough to be abstract, and for decades, the consequences of running them up have been easy to postpone. The question worth asking is what happens when postponing is no longer an option. What does a fiscal crisis actually look like for a family earning $80,000 or $90,000 a year? 

The Job Market Seizes Up  

The first thing that happens in a serious fiscal crisis is that credit tightens across the entire economy. When investor confidence in U.S. government debt starts to erode, as it did during the weak and poorly received Treasury auctions of November 2023 and in smaller episodes since, interest rates rise. When rates rise, businesses cannot borrow cheaply. When businesses cannot borrow cheaply, they stop hiring. When they stop hiring, they start cutting. 

During the 2008 financial crisis, which was severe but ultimately contained by government intervention, roughly 13 percent of American households reported financial distress in November 2008, and that fraction climbed to about 17 percent by June 2009. When measured cumulatively, nearly 40 percent of households experienced some form of financial distress during that 17-month period. A fiscal crisis of the kind CBO warns about would be different in kind, not just degree. In 2008, the government could step in and backstop the financial system. In a sovereign debt crisis, the government is the problem. There is no institution large enough to bail it out. 

For a middle-class household in which one or both earners work in sectors sensitive to credit conditions, such as construction, logistics, retail, or manufacturing, the first impact could be a pink slip. Unemployment would not look like 2008. It would look worse. When a similar dynamic played out in 2007, driven by collapsing mortgage securities rather than government debt, it led to hundreds of financial institution closures, a decline in housing values of roughly one-quarter, a contraction in output of more than 4 percent, and unemployment rising to 10 percent. A crisis rooted in sovereign debt, with fewer tools available to arrest it, could produce outcomes that compare unfavorably even to that. 

Savings Erode Faster Than Most Families Expect 

The median American household does not have much of a financial cushion. Most families living on $80,000 to $100,000 a year, after taxes, housing costs, and routine expenses, are not sitting on substantial liquid savings. A job loss in a normal recession is survivable for a few months. In an environment of spiking inflation and tightening credit, it is survivable for weeks. 

Inflation is one of the mechanisms through which a fiscal crisis reaches into every household’s budget. Rising debt increasingly creates a drag on economic growth, fuels inflation, and elevates interest rates for families and businesses. Inflation is not evenly distributed. It hits food, energy, and housing first, which are exactly the categories that consume the largest share of a working family’s income. A household that was managing its budget adequately at stable prices finds the same budget unable to cover the same bills when prices rise 10 or 15 percent. 

The savings disappear faster than expected because they are being spent on necessities at inflated prices while income stagnates or falls. Credit card debt rises to fill the gap. And then the credit cards hit their limits too. 

Housing Becomes a Trap 

For middle-class families who own their homes, a fiscal crisis poses a specific and painful problem. Rising interest rates make new mortgages more expensive, which depresses buyer demand and pushes home prices down. A homeowner who needs to sell in order to relocate for work, or who took out a home equity line to cover expenses, may find that the home is worth less than the debt against it. 

For renters, the situation is no better. Landlords facing higher operating costs pass those costs on. Renters who fall behind have few options when shelter vacancy rates are low and shelter costs are rising simultaneously. The shelter system cannot absorb sudden surges. When the math no longer works and eviction follows, most working families in most American cities have no safety net below them. 

The Children Bear the Long-Run Cost 

Households that have not yet entered the workforce will face the most severe long-term consequences of sustained fiscal irresponsibility. Rising debt slows economic growth, drives up interest payments to foreign holders of U.S. debt, makes the nation’s fiscal position more vulnerable to increases in interest rates, heightens the risk of a fiscal crisis, and increases the likelihood of other adverse outcomes. Slower economic growth means fewer jobs, flatter wages, and fewer opportunities for young people entering the workforce. 

Under current law, CBO projects that annual deficits will grow from 6.2 percent of GDP in 2025 to 7.3 percent by 2055, which would be higher than any point in modern history outside of World War II, the Great Recession, and the COVID-19 pandemic. Over that same period, the debt held by the public — the measure economists use to gauge fiscal health — is projected to rise from roughly $39 trillion today to $52 trillion by 2035 alone. The compounding effect of carrying that debt means that a larger and larger share of every tax dollar collected will go toward interest payments rather than services, infrastructure, or any of the things that working families rely on government to provide. 

This Is Not Inevitable 

None of this is written in stone. What CBO projects under current law reflects a failure of political will, not a failure of mathematics. The problem is solvable but it requires leaders in both parties who are willing to say plainly what is at stake. Every year that Congress avoids making those choices, the available options narrow and the required adjustments become more severe. 

To read more about what a fiscal crisis could mean for American families, read Nightmare on Main Street, No Labels’ account of how the debt crisis could unfold and who would pay the price.