The author is a professor of economics at Harvard University and the author of "Our dollar, your question"

U.S. fiscal policy is running away, with little political will on either side to resolve it until a major crisis occurs.

The budget deficit in 2024 accounts for 6.4% of GDP. Trusted forecasts suggest that the rest of President Donald Trump's presidency will exceed 7% of GDP. This is assumed that no black swan event once again leads to craters and debts that cause balloons. With U.S. debt already exceeding 120% of GDP, it seems that some kind of budget crisis seems more likely in the next five years.

Indeed, if the market trusts American politicians to pay back all bondholders (domestic and foreign) with priority rather than repaying partial defaults through inflation, then there is no need to worry.

Unfortunately, if people look at the long history of debt and inflation crises, then the vast majority happens when governments can pay, if they feel it. Often, a crisis is a major shock caused by a significant shock from the already high debt and inflexible fiscal policy that will cause policy makers to catch.

Of course, a Beautiful Act keeps tax cuts for Trump’s first term, which is highly likely to stimulate growth. But evidence of several rounds of tax cuts returned to Ronald Reagan from the 1980s shows that they pay little for themselves. Indeed, they are the main contributors to debt stability in the 21st century. Trump's new tax bill contains a series of highly distorted add-ons – no help for tips, overtime or social security taxes. Not surprisingly, the Congressional Budget Office concluded that the bill would increase debt by $240 million over the next decade.

The real problem for politicians is that American voters already have the conditions to never have to deal with sacrifice. Why do they want it?

Since Bill Clinton last obtained the budget in the late 1990s, Republican and Democratic leaders have stumbled themselves to sustain a larger deficit with seemingly no consequences. And, in the event of a recession, financial crisis, or pandemic, voters rely on getting the best recovery that funds can buy. Who cares about about 20% to 30% of GDP in debt?

Unfortunately, what has changed is that long-term real interest rates today are much higher than those in the 2010s. Between 2012 and 2021, the 10-year U.S. Treasury bills earned on average zero. Today, it is over 2%, and in the future, interest payments may be a force that continues to increase the U.S. debt-to-GDP ratio. Today, the rise in actual interest is much more painful than it was two decades ago, when the U.S. debt to GDP was half what it is now.

Why are the real interest rates rising? Of course, one of the reasons is the global debt level, both public and private debt levels. But this is only part of the story, not necessarily the most important part.

Other factors – including geopolitical tensions, a breakdown in global trade, a rise in military spending, the potential demand for artificial intelligence and the potential power of populism – are all important. Yes, it can be said that inequality and demographics can drive another way, which is why many outstanding scholars still believe that the continuous recovery of ultra-low real interest rates will ultimately save the day. But should the United States, which aims to continue global hegemony for more than a century, bet on farms?

Indeed, while long-term interest rates may drop, it is also possible that with the U.S. 10-year interest rate (now about 4.5%), eventually reaching 6% or more. If Trump succeeds in achieving his dream of a lower U.S. current account deficit, then his rise will intensify, with less than foreign money entering the U.S. on the other hand.

This will also be exacerbated if I say in my latest book, as China continues to decouple from the US dollar, European defectors and cryptocurrencies occupy market share in the global underground economy.

Trump’s tariff war, the threat of taxing foreign investment and efforts to undermine the rule of law will only speed up the process. Indeed, if he successfully realizes his dream of ending the U.S. current account deficit, the reduction inflow of foreign capital will further increase our interest rates and growth will be affected.

Just because the U.S. debt trajectory is unsustainable doesn’t mean it needs a huge ending. After all, the government can invoke Japanese-style financial suppression to keep interest rates artificially low, turning any crisis into slow action collapse rather than allowing interest rates to continue to rise, it can evoke Japanese-style financial suppression.

But slow growth is not an ideal result. Given the administration (whether Trump or successor), inflation is a more likely situation for finance to be central to U.S. growth. The high debt and rigid political balance in the United States will be the main amplifier of the next crisis, and in most cases the U.S. economy and the global position of the U.S. dollar will be losers.