There are fiscal jitters all over the place, not just in Europe. According to a new report by the Congressional Budget Office, the U.S. federal budget deficit soared to nearly $2T in the last fiscal year that ended Sept. 30, with the government splashing out $7.4T (+6% Y/Y) but collecting only $5.4T in revenue (+3% Y/Y). The sheer numbers have sparked concern among investors amid soaring bond yields, prompting a fresh warning from PIMCO that the 10-year Treasury yield could reach 6% for the first time since 2000.

What’s happening: Deficits of this magnitude typically only happen during deep recessions and wartime, not during sustained economic expansions. Making matters worse, U.S. net interest payments now exceed the entire defense budget and every other spending category except Social Security. Also not helping the situation are major tax breaks and hefty spending from the One Big Beautiful Bill, increased Medicare costs as the nation ages, and the loss of IEEPA tariff revenue following a contentious Supreme Court ruling.

No one is addressing the issue, neither Republicans nor Democrats. While the current administration did make some attempts at tackling the deficit, they are pennies in the bucket. The federal workforce was slashed under DOGE and clean-energy credits were curtailed, while healthcare subsidies expired and food stamp requirements were raised, but the real elephant in the room is tackling entitlement programs and raising more taxes rather than continually cutting the revenue stream. The way out? If current tax rates and spending remain in place, the nation’s debt is only likely to be lightened in two ways: generating real economic growth or inflating away the burden. While the messaging from the White House points to the former, inflation is still running at elevated levels, and has been every year since the aftermath of the pandemic. “The $40T [national debt] is a big number,” Treasury Secretary Scott Bessent said last month at Southern Methodist University. “We don’t have a revenue problem. We have a spending problem. With 3% growth and if we can contain spending, we grow our way out of this.”