The U.S. national debt is a record high, exceeding the size of the economy (GDP), with the debt-to-GDP ratio currently over 120% and projected to continue rising due to spending exceeding revenues. This debt finances government spending, which can be beneficial for economic growth and during crises but also leads to growing interest payments that consume an increasing share of the budget. If debt continues to rise unchecked, it could result in higher borrowing costs, slower growth, and reduced future living standards for Americans, though managing the debt involves balancing economic stimulus and fiscal discipline.
What is the National Debt?
- The national debt is the total amount of money the U.S. federal government owes to its creditors.
- It is held by both private investors (like individuals and foreign governments) and intragovernmental holdings (federal trust funds).
Current State of the Debt
- High and Rising: The U.S. national debt is at a record high, currently standing at about $37.4 trillion, which is more than 120% of the Gross Domestic Product (GDP), a key measure of the total economic output.
- Growing Deficits: The debt has grown significantly during periods of large federal budget deficits, including the 2008 financial crisis and the COVID-19 pandemic.
- Structural Imbalance: Projections indicate that the national debt will continue to rise relative to the economy’s size due to a structural mismatch between government spending and revenues.
Is it Good or Bad?
- Can Be Good: Government debt can be a useful tool for economic stimulus, such as providing financial assistance during a recession or funding investments that generate a high return.
- Can Be Risky: However, a large and growing national debt poses risks, including increased mandatory spending on interest payments, which can crowd out other government programs.
- Impact on Future Generations: High debt levels can lead to slower productivity growth, which may lower the living standards for future generations.
Key Issues
- Interest Payments: Interest expenses on the national debt are growing, consuming a larger portion of the federal budget.
- Debt-to-GDP Ratio: This metric is important for analyzing the debt’s impact by comparing it to the size of the economy. A ratio over 100% indicates the debt is larger than the annual economic output.
- Budgetary Deadlines: Congress faces ongoing challenges to balance the budget, with potential government shutdowns as a risk during difficult negotiations.
Government spending is stealing your future.
Each year, the federal government takes and spends nearly one-quarter of every dollar earned in America—roughly $52,000 per household. This affects all of us. Government spending may seem like a remote issue with no connection to your daily life, but that’s false. It has a direct impact on your life and the well-being of your loved ones.
In fact, you are already feeling the pain of government spending. From higher prices at the grocery store to the rising costs of rent and energy, the economic pain and even hopelessness many Americans are experiencing is the direct result of how much our government is spending—and has already spent.
The truth is, all government spending burdens you and ultimately comes at your expense.
Since government has no money of its own, it cannot give anything to anyone without first taking it from someone else.
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The government can’t spend one dollar on anything without first taking that dollar from another American—whether visibly, through an obvious tax, or invisibly and insidiously through inflation (the creation of new money), which steals value from your dollars. Either way, you are paying.
Every year, come appropriations time, Congress is initially unable to come to a spending agreement. As the funding deadline approaches, there is fearful talk of a government shutdown. Political theater ensues until both sides “compromise” and agree to borrow more money—on top of the $37,000 of taxes they are already taking per U.S. household per year—to pay for Congress’s ever-increasing spending.
This creates a massive deficit each year and adds to our already eye-watering national debt—in excess of $260,000 per household right now.
Congress borrows this money through two dangerous methods, both of which harm you. First, in a process called “crowding out,” it uses its monopoly on force to lure private capital investment away from the private sector. This boxes out Americans looking to buy a home or start a small business.
Second, and more subversive, it borrows from the Federal Reserve, which simply prints new money out of thin air. This expands or inflates the total amount of money in circulation and devalues all existing dollars, including the dollars you’ve saved.
In this way, the impact of the $15,000 per household that the federal government “borrows” each year is felt through higher interest rates, fewer jobs, lower rates of home ownership, and of course, much higher price inflation.
Government spending raises prices on literally everything including food, cars, homes, energy, rent, etc. In simple terms, government spending is economically choking you to death.
The dollars you own don’t buy as much because the government has spent some of their value and made them worth less. In stark terms, Congress is the bank robber, the Fed is the getaway driver, and you are the bank.
Since 2009, the federal government has been responsible for regularly operating at a $1 trillion (that’s $1,000,000,000,000) deficit per year. In fact, it’s estimated that in 2030 the annual deficit will crack $2 trillion each year—and sooner if the D.C. Cartel can pass more spending bills. These numbers are mind boggling and begin to lose their meaning, but they do matter.
These borrowed deficits and the taxes taken from you are both ways that the government steals your earnings and then redistributes them to those favored by politicians. Every bag of concrete used to build a bridge to nowhere is concrete not used to build a new home. In the same way, the government steals your time, the fruits of your labor, your freedom, and your future.
Guided by lobbyists and special interests, the people who write these spending bills consistently try to trick the public, loading them with “budget gimmicks” and giving them flowery names, which in many cases are the exact opposite of what the bill will actually achieve in the real world.
Consider the ironically named, “Inflation Reduction Act” which spent (stole) billions of dollars the government did not have and has poured gasoline on the flames of price inflation already burning Americans.
The $34.5 trillion of national debt is just the tip of the iceberg when it comes to the government’s theft from the American people. With a history of abuse like this, the solution cannot be that government needs to take more.
We don’t have a revenue problem, we have a spending problem. It’s not only time to trim government and its spending, it’s time to slash trillions and return this money to the hard-working American families who earned it in the first place.
Five myths about federal debt
Despite a strong economy, the U.S. budget deficit recently rose by nearly 40 percent year over year, largely because of the tax cuts passed in 2017 and the spending deal approved in 2018. Federal debt — the accumulation of past deficits — reached its highest level ever relative to the economy, with the exception of a few years around World War II. And that’s before financial shortfalls for Social Security and Medicare occur and send debt to unprecedented levels. Some conservatives warn of a coming debt crisis, while leading liberal economists argue that we can ignore deficits and debt at this time. Several myths are muddling the discussion.
MYTH NO. 1: Debt is harmless if it’s issued in a nation’s own currency.
In 2015, Nobel laureate Paul Krugman wrote that “because [public] debt is money we owe to ourselves, it does not directly make the economy poorer (and paying it off doesn’t make us richer).” Stephanie Kelton, a prominent advocate of modern monetary theory, says that “we should think of the government’s spending as self-financing since it pays its bills by sending new money into the economy.” In 2011, Warren Buffett said, “The United States is not going to have a debt crisis as long as we keep issuing our debts in our own currency.”
Yet in a recent University of Chicago survey of prominent economists, not one agreed that a country that issues debt in its own currency does not have to worry about deficits. Future debt will stem largely from anemic revenue growth and increased expenditures on an aging population. The result will reduce future national saving — the sum of saving by the private and public sectors — and drag down future national income. This could happen through higher interest rates, which choke off investment and reduce production and income. Or it could happen through greater borrowing from abroad, which would allow us to maintain production but siphon off increasing resources to debt payments. Estimates by the Congressional Budget Office and others indicate that these effects could be substantial. Politically, sustained deficits and rising long-term debt make it harder to garner support for new policies or to address the next recession, war or emergency.
MYTH NO. 2: Low interest rates mean debt doesn’t matter.
In a recent address to the American Economic Association, Olivier Blanchard, a former chief economist at the International Monetary Fund, said, “The signal sent by low [interest] rates is that not only debt may not have a substantial fiscal cost, but also that it may have limited welfare costs.” In Foreign Affairs, Jason Furman and Lawrence H. Summers wrote that low rates mean “policymakers should reconsider the traditional fiscal approach that has often wrong-headedly limited worthwhile investments.” Although these preeminent economists have been careful to qualify their statements, the popular discussion has sometimes jumped to the conclusion that low interest rates mean that deficits don’t matter.
Low interest rates certainly make debt more palatable and make the crisis scenarios look silly, but they are not a panacea. Under current law, the Congressional Budget Office projects that federal debt will rise from about 78 percent of gross domestic product (GDP) now to more than 150 percent by 2048 and will continue to increase afterward. Net interest payments are projected to rise from about 1.8 percent of GDP to more than 6 percent, which would be larger than the entire Social Security program.
Financial markets imply that low rates will persist, but have been wrong at times in the past. We can borrow and consume more if interest rates stay low forever, but if we accumulate a lot of debt and then rates rise, we will face major problems.
MYTH NO. 3: We should balance the budget and pay off the debt.
Centrist and conservative politicians and pundits constantly seek a balanced federal budget. Former senator Orrin G. Hatch (R-Utah) was called “Mr. Balanced Budget” because he sponsored or cosponsored legislation related to that goal more than 25 times . In 2018, columnist George Will wrote an op-ed for The Washington Post titled, “America needs a balanced-budget amendment.”
Balanced budgets may have symbolic value, but they are not necessary. Rules aimed at forcing balanced budgets make recessions deeper and longer by requiring spending cuts or tax increases during hard times, and they can be manipulated through accounting gimmicks. Almost every state has a balanced-budget rule, but many of them face future fiscal shortfalls focused on health-care and retirement spending, just as the federal government does.
An even more extreme goal is to pay off the entire debt. In 2016, Donald Trump said, “We’ve got to get rid of the $19 trillion in debt. . . . I think I could do it fairly quickly.” But paying off all debt makes no sense. As Alexander Hamilton explained, debt can be a blessing: It can facilitate trade, finance national defense, fight recessions, fund investments, and provide liquid and safe assets for investors. What we really need to do is put the debt on a stable and sustainable path. That will be hard enough.
MYTH NO. 4: We can grow our way out of the debt.
The Trump administration’s most recent budget projects average annual growth rates of 2.9 percent over the next decade, a reduction of the debt to 71 percent of GDP by 2029 and a balanced budget within 15 years, as a result of greater tax revenue.
Those figures, however, seem implausible. The CBO, the Federal Reserve and the Blue Chip forecasters all predict annual growth at 2 percent or below after this year, largely because of slowing labor force expansion. Using more realistic projections, the administration’s budget would actually yield a rising debt-to-GDP ratio. Faster economic growth could help lower debt, but the CBO estimates that raising productivity growth rates by one-third — an enormous boost — would slow the increase in the debt-to-GDP ratio over 30 years by only one-third.
In 1981, President Ronald Reagan’s tax cuts and defense spending put the nation on a rising debt path that took numerous bipartisan budget deals over 15 years to reverse. But now the debt-to-GDP ratio is three times as large as it was in 1981, and demographics are working against us: Baby boomers were entering the labor force and buying homes in the 1980s and 1990s, but they are retiring now, which will increase spending on Social Security and Medicare. Without policy changes, the budget won’t be able to avoid rising deficits and debt.
MYTH NO. 5: There’s an easy solution to the debt.
In his 2012 presidential campaign, Mitt Romney implied that he could tackle the debt in part by ending public television subsidies: “I like PBS. I love Big Bird. . . . But I’m not going to keep on spending money on things to borrow money from China to pay for it.” Much of the public has similar sentiments. As one voter told lawmakers in 2013, “Get rid of the deductions that don’t affect me.”
Any serious plan to lower the debt must involve significant tax increases and/or major spending cuts. Foreign aid, government salaries and other programs that politicians typically target are tiny, and eliminating them would not make much difference. Almost 70 percent of federal spending goes to Social Security, health care, defense and interest on the debt. Spending cuts will have to come from those areas. We can’t unilaterally cut interest payments — that’s called defaulting. And the other programs are extremely popular.
A second seemingly painless approach is to inflate away the debt. Trump once suggested to adviser Gary Cohn that the nation should “just run the presses — print money” to pay off the debt. This, of course, would lead to inflation. But most of our long-term obligations already are indexed to inflation, such as Social Security, Medicare and Medicaid payments. Inflation will not cut those costs.
The ultimate in pain-free solutions is the notion that broad-based tax cuts raise revenue. “Not only will this tax plan pay for itself, but it will pay down debt,” Treasury Secretary Steven Mnuchin said in 2017. But the record very clearly shows that broad tax cuts — such as those passed in 2017 — reduce revenue.
Four More Myths
Myth #1: The U.S. economy is dangerously over leveraged
The biggest source of confusion that we see on the U.S. debt is that the number tells us something important. It doesn’t—at least not by itself. That’s because the government is only a small part of the U.S. economy. What matters for macroeconomic purposes is how much all stakeholders, public and private, have borrowed. And when we layer in household and corporate borrowing, it’s apparent that the U.S. debt picture is relatively benign. Canadians, for instance, have leveraged more of their future production than Americans have, and U.S. borrowing is on par with Sweden and the UK.
Worrying about government debt is analogous to someone claiming to be debt free because they paid off last month’s credit card bill. That’s a tough argument if the person still has a mortgage, car loan, or student debt. Whether at the household or the national level, we’re unlikely to reach the right conclusion if we only look at one slice of the pie.
Myth #2: Investors need to prepare for an upcoming U.S. default
Defaults generally occur when borrowers lack the resources to fulfill their promises. That’s not likely to happen for the U.S. government, since the Treasury has only promised to give investors a set number of dollars at specified future dates. By happy coincidence, the U.S. government can manufacture dollars at the push of a button. In those circumstances, it would be an active choice for the U.S. to fail to meet its obligations. And given the lifespan of political careers after a sovereign default, we think it’s a choice U.S. leadership is not going to make.
As we’ve discussed before, the legitimate concern around excess borrowing is not default but inflation. The dollars will be paid as promised, but investors won’t be able to buy as much with the proceeds. This is a genuine risk. But it’s a much different concern than default. Sovereign defaults are economic catastrophes for most strata of society and tend to precede years of slow growth. Inflation is a serious problem, but it’s easier to deal with and usually orders of magnitude less severe than defaults.
Myth #3: Blame the politicians, they’re the ones in control
The prevailing narrative is that profligacy created our debts. Whether its crazy spending programs or unfunded tax cuts, debt is just a result of poor political leadership.
To be fair, there’s an element of truth to that view. Raising taxes is a political no-go, and there are certain programs that must be funded. Unfortunately, the uncuttable program costs exceed the un-raiseable tax proceeds. That’s a structural political issue, and it’s likely here to stay for the foreseeable future.
But the reality is the big run-up in government borrowing hasn’t been a result of political will. The biggest increases are from the global financial crisis and the pandemic. Without those two events, the U.S. debt-to-GDP ratio would likely be around 40 points lower. It’s difficult to argue, in our view, that politicians really had a choice when COVID struck or when the banking system veered toward collapse.
This again highlights the point that the government is only a relatively small part of the economy. If we look back to the last U.S. budget surplus in the 1990s, there were movements to control spending and raise taxes, but a major driver of the surplus was the rise of the internet and the concurrent economic growth.
Debt reduction is less about annual fiscal budget tightening than about avoiding catastrophes and reaping the fruits of innovation.
Myth #4: Reducing debt will make everything better right away
The old adage to “be careful what you wish for since you just might get it” is particularly apt when it comes to investors and government debt reduction.
The rise in U.S. government debt has been accompanied by solid investment returns across most—if not all—asset classes. Debt-funded government spending played a real role in those results. At its core, debt is about moving demand through time; borrowing adds to today’s demand and repayment reduces today’s demand. If the U.S. were to shift to debt reduction, it’s very likely that economic growth—and by extension corporate earnings—would decline, at least in the short term. Investor optimism around lower debt could help offset some of the effects of slower growth, but there is little empirical support for that idea.
Reality check
Despite the scary and oft-repeated headlines around U.S. debt, we struggle to see what keeps the fear going. Equity markets are at or near all-time highs; borrowing costs across the economy are largely manageable; and economic growth is strong with inflation declining. This has largely been the case for the U.S. for most of the past four decades, a period marked by rising government debt.
Is every dollar of U.S. government spending efficient? Of course not. Could tax policy be made more rational and do a better job of fomenting growth? Absolutely. But it’s a far cry from saying the world is not ideal to saying that we are on the verge of an economic apocalypse. To us, that leap, like much of the discussion on the U.S. debt, is better suited to economic mythology than financial reality.
The good, the bad and the ugly of the federal budget
The federal government has released its year end treasury statement – essentially Washington’s checkbook. While we may hear about good on one side of the ledger, there’s also some bad and some downright ugly throughout that should concern us all.
The good.
The U.S. Treasury Department report shows that over the past year, the feds spent $3.69 trillion and brought in less – $3.25 trillion. This left the nation with a $439 billion budget deficit. This deficit amount is actually ten percent less than in 2014, and 70 percent lower than its highest level in 2009 ($1.4 trillion.)
The Committee for a Responsible Federal Budget, (CRFB) which tracks federal spending says part of this reduction is due to less money spent on one-time federal bailout programs such the Troubled Asset Relief Program (TARP,) aid to Fannie Mae and Freddie Mac as well as expiring stimulus programs. A little less money spent on defense and the military also helped bring the two sides of the federal checkbook a little closer together.
But before getting too complacent, it’s important to look at a few other reasons why the deficit has fallen. And that requires looking at the rest of the federal checkbook.
The bad.
The CRFB concludes that economic recovery had more to do with a smaller deficit than reduced government spending.
An economy that is slowly recovering from the Great Recession means more people are working, and therefore paying more taxes. Lower unemployment plus 2012 tax increases to top earners (35 to 39.6 percent) and capital gains (15 to 20 percent) helped the government rake in a record high $3.25 trillion in 2015, which CNSnews.com breaks down to $21,833 for every person in the country with a full or part-time job. Indeed, most of this tax revenue came from individual income taxes ($1.54 trillion) and payroll taxes for government programs like Social Security ($1.07 trillion.)
That may not sound too bad, but we need to remember how high the federal deficit had gotten in the first place. The deficit had risen nearly 800 percent to reach its 2009 peak. The 2015 amount of $439 billion is still 270 percent higher than in 2007, just prior to the recession.
The ugly.
Behind the glow of deficit reduction is the ever increasing federal debt. That 70 percent deficit drop over last six years is a drop in the bucket compared to the 75 percent increase in public debt.
In dollar figures, federal debt has risen from from $5 trillion in 2007 and $7.5 trillion in 2009 to more than $18.2 trillion today. And the downright ugly part is this amount of debt is even more than our nation’s entire Gross Domestic Product, or the annual dollar value of all goods and services produced by the U.S., which was $17.9 trillion for 2015.
This means that even if we changed all the goods and services produced in our country this year into cash, and deposited into our hypothetical federal checking account, we still couldn’t pay off public debt – the nation would still be $300 billion in the red.
Which brings us back to the federal deficit. The short term deficit reductions do nothing for long-term prospects for either the deficit or the debt. The CRFB predicts that unless our policymakers commit themselves to “serious tax and entitlement reforms”, the deficit will return to trillion dollar levels by 2025 with debt continuing to outpace our economy.