We Cannot Afford A Recession
There has been ongoing debate as to whether the U.S. economy can weather some of the headwinds we’re currently facing.
However, if the past two recessions are any indication, we simply cannot afford a recession—not fiscally, not politically, and certainly not mathematically.
The core issue is that the debt-to-revenue ratio has risen sharply over the past couple of decades. In particular, after the Great Financial Crisis, levels rose above 500%.
Currently, federal debt stands at $36.2 trillion, while federal revenue (current receipts), measured on an annual rate, stands at $5.4 trillion.
Some may believe that tariff revenue can aid in lowering the deficit, but this seems like an unlikely outcome. Assuming a global 10% tariff rate and no change in global trade, the federal government could bring in $310 billion. While that would make a meaningful difference, these assumptions are optimistic.
Today, Brazil indicated its intention to initiate a discussion within the BRICS group about how to address the recent tariffs imposed by the United States. In time, we could see many countries impose retaliatory tariffs or other measures in response to the administration’s trade policy.
Additionally, tariffs are charged to the domestic importer, which will place pressure on domestic firms and their margins. Given the uncertainty and constant policy changes, many firms have thus far forgone passing these costs on to consumers—but this cannot last indefinitely. Eventually, they will, and consumers are not positioned to take on another round of inflation.
All of this is to say: the federal government is not poised to fix the debt-to-revenue problem via tariff revenue.
In order to improve this ratio, government revenue will need to increase—and that will, in large part, require raising tax rates. However, the Trump tax cuts that were set to expire have now been extended following the passage of the Big Beautiful Bill.
Despite claims to the contrary, the Trump administration is not enacting legislation that will meaningfully address the rise in the debt-to-revenue ratio. Although not a novel observation, this path is unsustainable, and it appears that neither political party in the United States is seriously looking to correct it.
If a recession were to occur, we could see the ratio rise further, as tax revenue falls and government spending increases to counteract the downturn. This is what happened during the Great Financial Crisis—though, at the time, the ratio was at a level that was half of what we’re facing today.
We Cannot Afford A Recession
There has been ongoing debate as to whether the U.S. economy can weather some of the headwinds we’re currently facing.
However, if the past two recessions are any indication, we simply cannot afford a recession—not fiscally, not politically, and… pic.twitter.com/hBb0d2kew9
— Reef Insights (@ReefInsights) August 7, 2025
For those wondering, US debt is up $550 billion in the past month pic.twitter.com/AnOtn3jVuy
— zerohedge (@zerohedge) August 29, 2025
