Dr. Bryan Brulotte is Chairman of Sterling-Trust, a Canadian private equity firm. He holds a doctorate in business and brings more than four decades of leadership experience spanning the military, private, and public sectors. He recently joined the NATO Association of Canada as Vice Chairman.America now owes more than $40 trillion. Canadians might reasonably ask why they should care about Washington's inability to balance its books. The answer is that when the world's largest borrower drives up the price of money, Canadians eventually feel it in their mortgages, investments, businesses, and government finances. America is not facing an imminent debt crisis. The US dollar remains the world's dominant reserve currency, Treasury securities remain central to the global financial system, and the United States borrows in a currency it controls. But debt held by the public is now roughly the size of the American economy, and its continued growth is beginning to matter.For years, Washington could borrow enormous amounts at remarkably low interest rates. The bond market now sends a different message: investors will keep lending America money, but increasingly they want to be paid more for it. Long-term Treasury yields have risen substantially, increasing borrowing costs throughout the American economy. That matters because government borrowing does not exist in isolation. Washington competes for capital with families buying homes and businesses building factories, data centres, power generation, and infrastructure. When the world's largest borrower requires more capital and pays more to obtain it, the consequences eventually spread throughout financial markets.The most troubling number may therefore not be $40 trillion at all. It is the approximately $1 trillion Washington is now spending annually simply on net interest on the federal debt. Every additional dollar devoted to servicing yesterday's borrowing is a dollar unavailable for defence, infrastructure, healthcare, or other national priorities..The short-term solution is relatively straightforward, although politically difficult. Washington must stop treating enormous peacetime deficits as normal fiscal policy and begin slowing the rate at which debt accumulates. Nobody seriously expects the United States to repay $40 trillion, nor does it need to, but it must eventually stabilize its debt relative to the economy supporting it.The medium-term challenge is harder. Social Security, Medicare, taxation, and federal spending cannot all remain politically untouchable while deficits continue indefinitely. Economic growth can do considerable heavy lifting, particularly if artificial intelligence, energy development, and technological innovation generate sustained productivity gains, but growth cannot permanently compensate for governments spending substantially more than they collect.The long-term objective should therefore be simple: make the economy grow faster than the debt. America has tremendous capacity to accomplish this, but doing so will require fiscal discipline combined with policies that encourage investment, productivity, and economic expansion. Gradual reform today would be far preferable to abrupt tax increases, spending reductions, or inflationary policies imposed by necessity tomorrow..The Federal Reserve cannot make this problem disappear. It controls short-term interest rates, but investors ultimately determine what return they require to hold 10, 20, and 30 year Treasury bonds. The Fed could therefore eventually reduce its policy rate while long-term borrowing costs remain elevated because investors continue demanding compensation for inflation, deficits, and fiscal uncertainty.This is where the American story becomes Canada's story. Our economies and capital markets are deeply integrated, and US interest rates influence Canadian mortgages, government borrowing, and corporate financing. Persistently higher American rates can also constrain how far the Bank of Canada can move independently without placing additional pressure on the Canadian dollar. Canada should draw another lesson from Washington's predicament. We do not possess America's reserve currency, the depth of its capital markets, or the extraordinary international demand for its government securities. We also face our own productivity and investment challenges, which make maintaining fiscal credibility particularly important.America can manage $40 trillion of debt because its economy, institutions, and financial markets remain enormously powerful. But even the United States cannot indefinitely increase debt faster than the economy supporting it without eventually paying a price through higher interest costs, reduced investment, and diminished economic flexibility. If Washington is discovering that there is eventually a price for borrowing without restraint, Ottawa should draw the obvious lesson: debt is manageable until the people lending you the money decide it is not.Dr. Bryan Brulotte is Chairman of Sterling-Trust, a Canadian private equity firm. He holds a doctorate in business and brings more than four decades of leadership experience spanning the military, private, and public sectors. He recently joined the NATO Association of Canada as Vice Chairman.
