The national debt...
- Adam Edwards
- Jan 28
- 4 min read
I found it hilarious that Trump was able to release some meme coins, make a load of money off this grift and there is (yet) to be any look into it. Then, found an article on Business Insider about Mark Cuban thinking of releasing one and using to help clear the US national debt.
The national debt is obviously something we're all aware of but I've never thought about how it impacts business so thought I'd look into it...
Impact on Interest Rates
National debt is often financed through government borrowing. When a country’s debt is high, the government may need to offer higher interest rates to attract lenders (investors in government bonds).
Effect on businesses
Higher borrowing costs: Increased interest rates mean businesses pay more for loans and credit lines.
Reduced investment: High borrowing costs can discourage businesses from expanding or investing in new projects.
Example: United Kingdom
In January 2025, the UK government borrowed £17.8 billion, significantly exceeding expectations. This increased borrowing contributed to higher interest rates, raising borrowing costs for businesses. Companies faced challenges in financing operations and expansion due to these elevated rates. (source)
Inflation Risks
If the government finances the debt by printing money, it can lead to inflation, reducing the purchasing power of money.
Effect on businesses
Increased costs: Higher inflation raises the cost of raw materials, wages, and other inputs.
Reduced consumer spending: Inflation erodes disposable income, leading to reduced demand for goods and services.
Example: United States
In 2022, the U.S. faced significant inflation partly due to high national debt levels and expansive fiscal policies. Businesses experienced increased costs for raw materials and wages, leading to higher consumer prices and reduced purchasing power. This scenario underscored the link between national debt, inflation, and business challenges. (source)
Taxation Changes
High national debt may prompt governments to increase taxes to generate revenue.
Effect on businesses
Higher corporate taxes: Reduces profit margins.
Higher personal taxes: Consumers have less disposable income, potentially reducing demand for non-essential goods and services.
Example: United Kingdom
Following the 2024 Budget, the UK government increased employer National Insurance contributions and lowered the earnings threshold. These tax hikes raised operational costs for businesses, leading some to reduce their workforce to manage expenses. Notably, major retailers like Sainsbury's and Morrisons announced plans to lay off thousands of workers in response to these increased tax burdens. (source)
Government Spending Patterns
Servicing a large national debt (paying interest) can consume a significant portion of government revenue, leaving less for infrastructure, education, healthcare, or business subsidies.
Effect on businesses
Reduced public investment: Poor infrastructure or less support for industries can hinder business operations.
Shift in priorities: Governments may cut subsidies or incentives that businesses rely on.
Example: United Kingdom
The UK's high national debt has led to increased borrowing costs, consuming a significant portion of government revenue. This situation has constrained public investment in infrastructure and services, affecting businesses that rely on government contracts and support. The limited fiscal space has made it challenging for the government to stimulate economic growth, impacting the broader business environment. (source)
Exchange Rate Fluctuations
High national debt can weaken a country's currency if investors lose confidence in its ability to repay. A weak currency affects imports and exports.
Effect on businesses
Higher import costs: Businesses relying on imported goods or materials may face higher costs.
Export opportunities: Businesses that export products may benefit from a weaker currency, as their goods become cheaper internationally.
Example: United Kingdom
In January 2025, the FTSE 100 index reached a record high, partly due to a weakening pound. While a weaker currency benefited exporters by making their goods more competitive abroad, it increased costs for businesses reliant on imported goods and materials, squeezing profit margins. (source)
Economic Stability
Excessive national debt can lead to financial crises if investors stop lending to the government or demand extremely high interest rates.
Effect on businesses
Recession risks: A debt crisis can trigger a recession, reducing demand, increasing unemployment, and harming businesses.
Uncertainty: Businesses may delay investments due to economic instability.
Example: European Union
The European debt crisis, which began in 2009, led to significant economic instability across the EU. Countries like Greece faced severe fiscal challenges, leading to austerity measures that contracted economies. Businesses in affected countries experienced reduced demand, higher taxes, and a lack of access to credit, resulting in closures and layoffs. (source)
Consumer Confidence
High national debt can erode confidence in the economy, making consumers and businesses cautious with their spending.
Effect on businesses
Lower sales: Reduced consumer spending directly impacts revenue.
Delays in growth plans: Businesses may hesitate to expand or innovate in uncertain times.
Example: United Kingdom
In 2024, the UK faced economic challenges, including high debt levels and increased borrowing costs. These issues contributed to a decline in consumer confidence, leading to reduced spending. Businesses, particularly in retail, experienced lower sales, prompting some to close stores or reduce operations.
Global Competitiveness
A heavily indebted nation may lose competitiveness if it struggles to attract investment or maintain a stable economy.
Effect on businesses
Reduced foreign investment: Businesses may find it harder to attract international funding or partnerships.
Supply chain issues: Economic challenges linked to national debt can disrupt global supply chains, affecting costs and delivery.
Example: European Union
Over the past decade, Europe's economic growth has been slower compared to the U.S., partly due to higher government spending and increased regulation. These factors have decreased productivity growth and made it challenging for European businesses to compete globally. The increased debt burden has limited the EU's ability to invest in innovation and infrastructure, further impacting competitiveness. (source)