Commentary: Why America’s Debt Binge Is Starting to Matter

For years, warnings about America’s rising debt faded into the background. Now, Ruchir Sharma argues, the wolf is finally approaching the door, with runaway borrowing helping trigger a global sell-off in government bonds last month.

The immediate danger he identifies is a rise in long-term US interest rates. If they decisively cross 5 percent, higher borrowing costs could short-circuit the artificial intelligence boom. Sharma places that risk in a broader history of bubbles, arguing that major investment manias eventually collapse when financing becomes significantly more expensive.

He says the current cycle differs from earlier bubbles because the largest borrowing excesses have accumulated on government balance sheets. In previous episodes, companies typically borrowed heavily to chase the hottest investment theme. In recent decades, governments have instead continued providing stimulus even during good times.

The United States has run budget deficits of about 6 percent of GDP throughout this decade, more than twice the average of earlier decades. Households and corporations largely avoided adding too much debt until the past year, when technology hyperscalers began borrowing to fund a massive AI infrastructure build-out as their cash surpluses declined.

Government interest payments provide another warning sign. They have more than doubled over five years, reaching above 3 percent of GDP, a record for the United States and the sharpest increase to the highest level among major developed economies. Rising concern about public finances, alongside factors such as surging energy prices, has pushed government bond yields higher worldwide. The higher-rate environment is also raising costs for AI companies, which account for the largest share of new corporate debt issuance.