United States Trapped in a Sovereign Debt Snare, Bankruptcy Inevitable Without AI and Robotics?

Interest costs on federal debt have already surpassed current defense spending,
Federal interest outlays projected to reach $1.8 trillion by 2035,
Explosive AI-driven growth touted as the last bulwark against sovereign default

As U.S. sovereign debt climbs beyond roughly $37 trillion, concerns over fiscal sustainability are intensifying. The United States has long enjoyed the “luxury” of selling Treasury bonds denominated in its own currency to foreign investors, leveraging the dollar’s reserve-currency status, and deploying quantitative easing alongside aggressive fiscal expansion whenever crises emerge. Even for the United States, however, interest costs remain unavoidable. With projections showing interest payments overtaking defense spending to become one of the largest federal expenditure items over the coming decades, artificial intelligence–driven labor-cost compression is increasingly cited as a potential remedy. Yet this solution carries its own risks, as it threatens to erode a tax base built on labor income, leaving its effectiveness as a path to fiscal normalization uncertain.

Musk “The United States Is Heading 1,000% Toward Bankruptcy Through Debt”

According to Fortune, a U.S. business and economics magazine, Elon Musk, CEO of Tesla, appeared on the Dwarkesh Patel podcast on the 5th and delivered a scathing critique of America’s debt trajectory. Musk asserted, “Without AI and robotics, we will, as a nation, go 1,000% bankrupt and fail,” insisting that no alternative solution exists. He warned that the United States is effectively barreling toward insolvency, with sovereign debt accumulating beyond control.

Data from the U.S. Treasury show that total federal debt has reached $38.56 trillion. This translates into a per-capita burden of approximately $110,000 for every American and is comparable to the cumulative budget the South Korean government would spend over 77 years. As federal expenditures continue to outpace revenues, the debt load keeps expanding. In the 2026 fiscal year alone, the U.S. government has already spent an additional $602 billion.

Musk emphasized that the cost of servicing the debt poses a greater threat than the debt itself. “Interest payments on national debt already exceed the defense budget,” he said, noting that more than $1 trillion is required annually just to cover interest expenses. This implies that the United States is allocating more resources to past borrowing than to national security, a distortion that underscores the severity of its fiscal imbalance. Treasury data show that the average interest rate on federal debt surged from 1.556% in January 2022 to 3.36% in September last year. Annual federal interest expenses now total $1.216 trillion, accounting for 17% of total federal spending.

This burden is expected to intensify. The Committee for a Responsible Federal Budget projects that U.S. interest costs will exceed $1.5 trillion by 2032 and reach $1.8 trillion by 2035. Citing these projections, Musk warned that maintaining the current fiscal trajectory would significantly undermine the long-term sustainability of the U.S. economy.

Expansion of Social Security and Defense Spending Fuels Debt Growth

Musk’s warnings align with growing concerns among leading financial figures. Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, has repeatedly cautioned that the United States risks falling into a “debt death spiral,” where new borrowing is used to service existing obligations. According to Dalio, as debt accumulates, repayment burdens consume a rising share of income, gradually suffocating economic circulation. He likens the process to waste buildup in blood vessels that obstructs the flow of nutrients throughout the body. As repayment pressures intensify, productive spending and investment are crowded out, eventually pushing the economy toward a systemic paralysis threshold.

When economic conditions deteriorate, investors reassess not only newly issued Treasuries but also the returns on outstanding bonds, triggering sell-offs. Bond supply then overwhelms demand, driving yields sharply higher. Central banks respond by injecting additional liquidity or expanding the money supply, but financing debt repayment through monetary expansion dilutes currency value and undermines the role of money as a store of wealth.

French economist Jacques Attali has also warned that weakening growth could exacerbate U.S. debt and dollar vulnerabilities, potentially triggering a major catastrophe. He has noted that U.S. public debt stands at its highest level since World War II, arguing that while raising the debt ceiling may appear to offer relief, it ultimately leads to an outcome where the world’s most powerful economy and currency confront bankruptcy.

The surge in U.S. debt has been driven largely by expanding social security and healthcare expenditures, alongside rising defense spending. The Trump administration’s pressure on NATO allies to increase defense-cost sharing, as well as its push for lower interest rates, reflects mounting urgency to avert fiscal collapse. With interest burdens consuming incremental revenue gains, traditional monetary policy alone has become insufficient to escape the debt trap.

The greater fear lies in the absence of any credible resolution even beyond 2030. The International Monetary Fund projects that the United States will run annual fiscal deficits exceeding 7% of GDP through 2030, the highest level among advanced economies. The Congressional Budget Office forecasts that federal debt will reach 156% of GDP by 2055, up from 143% in 2030, an additional deterioration of 13 percentage points over 25 years. The CBO further warns that from 2045 onward, interest rates could exceed economic growth rates, triggering a full-scale debt spiral in which borrowing begets more borrowing.

Labor-Cost Compression Through Automation

Against this backdrop, experts increasingly point to large-scale labor-cost reductions enabled by AI as a potential escape route. With robotics and automation at the core of this transformation, technological innovation is seen as capable of offsetting entrenched structural inefficiencies in the U.S. economy. AI-driven logistics platform Fasto reports that after three years of deploying autonomous mobile robots, it tripled productivity and reduced labor costs per shipment by 61%, with a single robot matching the output of a veteran worker. Robots deliver consistent performance and precision, stabilizing manufacturing processes against external disruptions while enhancing productivity. Once initial capital and maintenance costs are absorbed, they require no incremental labor expenses, amplifying cost-saving effects.

A Morgan Stanley report estimates that U.S. corporations could achieve $1 trillion in cost savings through AI adoption, driven by workforce reductions, natural attrition, and automation of repetitive knowledge-intensive tasks. With widespread deployment of agentic AI software and humanoid robots, S&P 500 companies alone could realize annual net benefits of $920 billion, equivalent to 41% of their total labor costs.

Morgan Stanley expects most of these savings to materialize through wage reductions and declining demand for repetitive, process-driven roles. The projected savings amount to roughly 28% of the S&P 500’s pre-tax earnings for 2026, with ripple effects across nearly every industry. Economic value creation is expected to emerge from a combination of cost savings and new revenue and margin expansion, as employees devote more time to higher-value activities.

Yet the displacement of human labor by AI and robotics threatens to destabilize tax systems anchored in wage income. As employment contracts, labor-based tax revenues are likely to shrink, weakening government finances. Job losses also risk suppressing household consumption, compounding domestic demand stagnation and eroding tax receipts. Whether the productivity revolution driven by AI and robotics can meaningfully alleviate America’s sovereign debt burden therefore remains an open question.