The United States is facing a mounting debt crisis, with the national debt reaching unprecedented levels. As of 2023, the U.S. debt has climbed to approximately \$34.6 trillion, roughly \$102,976 per capita. This alarming increase is sending shockwaves through both U.S. and global markets, raising concerns about the long-term stability of the global economy.
According to a recent report by the U.S. Congressional Budget Office (CBO), the publicly held debt-to-GDP ratio is projected to surge from 97 percent in 2023 to 107 percent by the end of 2029, surpassing the historical peak recorded after World War II. The CBO warns that this ratio could continue to accelerate, reaching 116 percent by 2034 and a staggering 166 percent by 2054.
Drivers Behind the Debt Surge
Several factors contribute to this escalating debt. The primary drivers include increased spending on social security and interest payments, significant stimulus measures during the COVID-19 pandemic, and substantial investment packages initiated under the current administration. Additionally, the 2017 Tax Cut and Jobs Act has reduced federal revenues by an estimated \$1.8 trillion through 2027.
Warnings of an Unsustainable Path
CBO Director Phillip Swagel has expressed concerns about the nation’s fiscal trajectory, warning that the U.S. could face a market shock similar to that experienced by the United Kingdom during the brief tenure of former Prime Minister Liz Truss. Swagel emphasized that while the U.S. is “not there yet,” the rising national debt could have significant effects on interest rates, potentially leading to dramatic fiscal consequences.
Bloomberg Economics conducted extensive simulations, with 88 percent indicating that the debt-to-GDP ratio is on an unsustainable path. The potential for a debt-interest spiral looms, where increasing debt leads to higher interest rates, further exacerbating the debt burden.
Implications for Domestic Investment and the Economy
The growing debt and associated interest payments risk crowding out both public and private investment. In the fiscal year 2023 alone, net interest payments surged by 38 percent compared to the previous year, reaching \$659 billion, or 2.4 percent of GDP. Projections indicate that interest costs could soar to \$1.2 trillion by 2032, becoming the largest federal expenditure within the next three decades.
This rising interest burden could limit government spending on critical infrastructure, education, and other productive programs, potentially slowing long-term economic growth. For businesses, higher interest rates mean increased financing costs, which may lead to reduced hiring, cutbacks in research and development, and deferred investments in new projects.
Global Market Ripple Effects
The implications of America’s debt crisis extend beyond its borders. Global markets are sensitive to the fiscal health of the U.S., given its significant role in the world economy. Higher U.S. interest rates can impact global borrowing costs, influence currency valuations, and affect international trade dynamics.
A Call for Fiscal Responsibility
The mounting national debt presents a complex challenge that requires urgent attention. Policymakers face the difficult task of balancing economic growth initiatives with fiscal responsibility. Addressing the structural reasons behind the debt surge is essential to prevent potential economic turmoil both domestically and globally.
