Explainer: US National Debt

01 March 2024 / Report

The Debt Crisis is here – the US national debt, the amount of money that the Treasury has borrowed and not yet repaid to meet its spending obligations, recently reached a record $34.1 trillion. Government spending also exceeded government revenues by $1.7 trillion in Fiscal Year 2023. Combined with rising costs to service the national debt and the impending insolvency of the Social Security and Medicare trust funds over the next decade, the US faces a challenging fiscal outlook that will only continue to worsen absent immediate action from federal policymakers.

This explainer provides an overview of the national debt; historical, demographic, and economic trends that have influenced the debt’s growth; and the impact of the outsized levels of national debt on the Federal government and the economy, along with CED’s recommendations to address the Debt Crisis.

Trusted Insights for What’s Ahead™

Annual budget deficits lead the Federal government to borrow money to cover the gap between spending and revenues, increasing the national debt.
Most of the national debt is held by domestic and foreign investors (“the public”), though foreign ownership of the debt as a percentage of the total debt has declined in the past decade.
The broader trends of an aging population, rising health care costs, rising costs of servicing the debt, and lower economic growth and government revenues are the primary drivers of the rising national debt.
In the 21st century, the national debt has increased significantly because of government responses to major events including the September 11 terror attacks, the Great Recession of 2008, and the COVID-19 pandemic, highlighting the need for a sustainable level of national debt to be able to respond to future geopolitical crises.
The Debt Crisis is here. The outsized and unsustainable national debt poses significant challenges to the Federal government, US economy, and society at large, and the costs of inaction are only rising. The servicing of the outsized national debt will crowd out other national priorities and may cause a loss of confidence in the Federal government’s ability to repay the debt. This will have adverse impacts on the economy, particularly on the Federal government’s credit rating, the higher interest rates that the US Treasury must pay investors to compensate for the greater risk of default, and the value of the US dollar as investors seek safer investments.
Consequently, given the size and breadth of the US economy and the US global leadership role, both global security and economic stability and growth will be adversely impacted.
The cost of servicing the national debt is also projected to grow to historic levels over the next decade because of higher spending and higher interest rates, which makes financing additional debt more expensive and further exacerbates the Debt Crisis.
The debt-to-GDP ratio shows the burden of the national debt relative to the country’s total economic output and reveals the United States’ ability to pay down its debt. Public debt stands today at its highest level since World War II – 99 percent – and is projected to grow even higher in the next decade. Based on examples from international financial institutions, the recent past, and econometric analysis, CED recommends a public debt-to-GDP ratio of no higher than 70 percent, still high historically – but a more stable and sustainable level of debt burden. To get down to this debt ratio will take time. We must start taking action now.