Perhaps the least surprising news story in recent days concerned the fact that the nation’s gross national debt passed the $37 trillion mark.
Least surprising — and probably the most overlooked.
Yes, as recently as 2020, the Congressional Budget Office predicted this milestone wouldn’t happen until 2030, but that was before the pandemic, stimulus checks for everyone and other spending bills. This year’s budget package, signed into law by President Trump, is projected by the CBO to add $4.1 trillion to the total over 10 years.
These figures tend to be overlooked for two reasons. The first is that, so far at least, overspending hasn’t visibly affected the economy. Unemployment is at 4.2% nationally. Inflation has been an irritant, but it has been hovering at about 2.7% recently, which seems manageable. Excessive debt squeezes out private investments, but it’s hard to notice something that hasn’t happened, especially when other indicators remain positive.
The second is that average Americans have difficulty fathoming such high numbers. If every man, woman and child on earth, not just in the United States, were to contribute $1, it wouldn’t equal 1% of $1 trillion, let alone $37 trillion. The debt equals $108,499 for every American citizen, or $323,053 per taxpayer, according to the ever-growing numbers on usdebtclock.org.
Financial advisors offer a simple message to individuals: stay out of debt. And if you are in debt, start today to take the steps necessary to cut down debt.
The United States is literally borrowing its current prosperity from future generations. The real measure of sustainability is the annual interest payment due on the debt, which, according to the Treasury Department, currently sits at about $1.013 trillion, or 17% of total federal spending this fiscal year. For comparison sake, the U.S. military budget is about $850 billion.
For the time being, the nation has no trouble finding investors willing to purchase Treasury bonds to make such debt possible, but that may not last.
Nearly two years ago, the University of Pennsylvania’s Penn Wharton Budget Model published a paper that predicted the nation’s economy will face huge problems once the gross national debt reaches 200% of the nation’s total economic output. The current debt equals about 123% of GDP, according to the U.S. debt clock.
At that level, investors may begin to question the nation’s ability to repay its debts. U.S. Treasury bonds are attractive because they are considered safe investments, despite offering low interest rates. When investors lose confidence, they could begin demanding higher returns to compensate for increased risk, which would ripple through the economy, leading to inflation and unemployment.
When that happens, “no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly,” the Wharton paper said. The prediction is that this threshold will be reached in about 18 years, but Washington seems to exceed expectations in these regards.
Social Security’s trustees warn of a looming crisis with retirement funds within the next decade, which, if unaddressed, could set some of this in motion.
Meanwhile, Americans who are outraged about government overspending need to consider one other troubling fact. WalletHub just released a study showing that Americans “are carrying a staggering amount of household debt including over $1.2 trillion in credit card debt, $1.65 trillion in auto loans, and several hundred billion dollars in personal loans.”
The most alarming fact, according to the personal finance company, is that this debt is growing quickly. It rose by $28 billion in 2024.
Imagine a future in which the U.S. government is forced to negotiate settlements with its creditors; inflation, interest rates and unemployment are out of control; and average people have debts that far exceed their income or savings. Houses would be lost, cars and recreation vehicles would be repossessed, credit would disappear, and people would turn to the federal government for assistance. Only, the federal government would be powerless to help.
Yes, these are difficult things to imagine as the debt totals roll past milestones and the sun keeps shining.
The good news is that the nation still has time to fix things. Even small steps toward debt reduction would do wonders to calm markets. But those steps need to happen soon.