How a Growing National Debt Could Lead to Economic Crisis, According to Tech Visionary Elon Musk

A man known for his innovation, space-travel ambitions, and electric vehicles; Elon Musk has recently revealed a worry he holds about an item oftentimes not even mentioned in conversation amongst United States citizens: the national debt. Musk, who is the CEO of companies such as Tesla and SpaceX (and now X — formerly Twitter) might be a technology genius but he also seems to know economics well. There are also newer comments that suggest to most likely go bankrupt if they keep increasing the debt as they grow.

Although some may take Musk’s comments with a grain of salt, his admonishments sound at an apt moment for the U.S., as its national debt is skyrocketing and no apparent measures are being taken to control it. Adding to the general economic malaise is how the governments spend capital, not only relative to what could generate growth but in terms of inflation and interest rates which can also head towards fiscal crisis. This review will discuss the issues raised by Musk, put them in a wider context of America’s skyrocketing debt obligations, and examine prospective solutions to avoid hitting rock bottom as Musk foresees.

Musk’s Concerns: A National Debt in Crisis

He has often expressed his worry about the U.S. national debt, which presently sits above $33 trillion and rising every day. Echoing fears expressed by many economists worried about mounting debt, runaway inflation, and higher interest rates pushing the U.S. over a financial cliff littered with tin cans is throwing more good money after bad into “a sinking ship,” he said in an interview. Musk tweeted that America is “going so bankrupt extremely quickly” and displayed a heightened sense of urgency on this point.

So just what is Musk saying when he talks about America going bankrupt? Again, just to clarify: A country such as the United States cannot “go bankrupt” in quite the same manner that a corporation or individual can. Rather, national insolvency would become evident from the effects of hyperinflation — and thus a loss in investor confidence — as a government was unable to pay back what it owed. This would slash the U.S. government’s capacity to fund social programs, infrastructure projects, or even its basic operations.

The Root Causes: Why Debt Is Escalating

The United States has a long history of borrowing, particularly in times of war or economic recession, to stimulate growth and fund government programs. However, the debt problem has accelerated in recent years due to several factors:

1. Government Spending: The federal government has run a deficit — spent more money than it takes in revenue — nearly every year since, especially during recent decades. There are some programs like Medicare, Social Security, and defense spending that chew up sizeable chunks of the federal budget. The 2020 and 2021 COVID-19 relief packages also piled on debt.
2. Tax Cuts: Virtually always a political winner, tax cuts have repeatedly led to lower federal revenues. There was the Tax Cuts and Jobs Act of 2017, which President Trump pushed through; it dropped corporate taxes but opened a big can on Uncle Sam’s shoulders.
3. Rising Interest Rates: Higher interest rates mean a higher cost to service the national debt as well, thanks to how much we borrow and spend (or our borrowing/spending nexus). When the government borrows money, as it does every time there is a budget deficit to fund, interest must be paid on that borrowed amount and higher rates tend to spur demand for T-bills.
4. Inflation: Future generations will conveniently pay the interest and our policies have a ready pace to debase purchasing power, so paying back in deflated dollars makes managing debt easier for now. By reducing the value of money, inflation drains resources needed for government programs and to service outstanding debts.

Musk’s Solutions: Fiscal Responsibility and Innovation

Musk’s dire warning isn’t just a hoary old doomsday forecast, though: It also advocates for how we might help avoid a U.S. financial Armageddon with some tried-and-tested ideas on not making the same sort of mistakes again that helped precipitate it in the first place… His demands for increased austerity may be his way of begging Congress to stop the spending spree before we reach a breaking point. Musk frequently stresses that innovation, particularly in technology and energy could lead the way to an economy rebounding doing so without even having to tackle our debt nonsense.

Musk has long touted the promise of renewable energy — through solar and wind developments that he says will transform new employment sectors, and reduce our dependence on fossil fuels such as imported oil. Elon Musk, CEO of Tesla and SpaceX is such an entrepreneur who recognizes the long-term value of technology advancements which have the potential to pay huge but also could have taxpayers breathing a little easier. An innovation-friendly fiscal policy like the one proposed in this paper would allow the U.S. government to raise new revenue streams and limit its dependence on debt issuance if it so chooses.

The Risks of Inaction

The question then is what will happen should Musk be ignored? Most economics experts have their takes, but the consensus seems to be that we are well past any point of interest and change is finally needed lest things get out of control.

1. Investor Confidence: The Treasury bonds are what the U.S. government sells to investors — both foreign and local. But if those investors were to lose confidence in the United States’ ability to pay down its debt, they could drive up interest rates by demanding higher yields or opting not to buy any more U.S. bonds at all and thrusting us into a financial crisis.
2. Hyperinflation: One of the most disastrous results when debt is out in the open as reserve notes are hyperinflation. While the government can also choose to just print more money and pay its debts, that carries with it inflation so bad at times such as enough to devalue the dollar itself. Many other examples, such as Zimbabwe and Venezuela have been driven into hyperinflation if we are to face the facts, with disastrous impacts on economic performance.
3. Cuts to Social Programs: Should the cost of maintaining them become prohibitive, this would mean draconian cuts to social programs — SS, Medicare, and Medicaid. Given those facts, across-the-board spending cuts of the sort required under sequestration would have to fall disproportionately on low- and middle-income Americans—more likely worsening income inequality that has never been higher—and is hardly expected in a passionate society like ours.

A Call to Action: Moving Toward a Solution

Musk jokes about the issue, but while his warnings might not be real there are ways that our government can sober up from its debt-hangover. Before anything else, elected leaders need to get past partisan politics and focus on fiscal discipline. That could entail paring back on spending elsewhere or reforming other programs in a way that makes them cheaper.

And a less regressive tax system could produce the revenues required to pay down the debt. Rather than the massive handouts in deep tax cuts for companies and high-income earners, to invigorate economic growth revenues could retain their progressive edge by encouraging everybody to pay their fair share.

Finally, we must invest in innovation and infrastructure. As Musk says, it provides new ways for people to make a living in the form of revenue generation and employment through increased technology; notably renewable energies (such as SolarCity) and artificial intelligence. The nation could borrow less and the American economy would stand taller through long-term investments in these sectors.

Conclusion

America: Listen up Elon Musk is this entropic horror story of expanding national debt rolls on. The only non-bankruptcy is a de facto administration of all government revenue by the national debt holders that will seriously erode everything from investors to benefits. The bottom line is that the U.S. does not have to careen towards financial ruin and foregone conclusions; simply with some fiscal discipline together with a dose of technological innovation, it can improve its outlook and seal a less wobbly economic future for itself as well. This is easy, then for policymakers to listen to Musk and his words need to be changed into action before it is too late.