Key Takeaways
- The U.S. national debt crossed the $34 trillion mark on Dec. 29, hitting a new record high.
- Whether the debt is unsustainable or manageable is a matter of debate among experts.
- High interest rates mean that the federal government is devoting more of the budget to debt service, equal to the size of the military last year.
- Despite the uptick, the amount of interest paid compared to the country's total economic output is near historic lows.
As the U.S. national debt—all 14 digits of it—climbs ever higher, economists and politicians are still debating about how big of a problem it is for the government to owe that much money.
The total amount owed by the federal government crossed a new milestone last month when it hit $34 trillion on Dec. 29, the Treasury Department said Tuesday. As Democrats and Republicans in Congress gear up for a showdown over the government budget, prominent economists are divided over whether that growing sum represents an urgent crisis, or if it’s just a number.
Among those in the “urgent crisis” camp are Dana M. Peterson, chief economist at nonprofit economics think tank The Conference Board, and Lori Esposito Murray, president of the board’s committee for economic development. Back in September, when the national debt was $33.6 trillion, they argued that the debt crisis was already here.
“The congressional debate this year over FY2024 spending levels has contributed to a historic collapse of governance in the U.S. Congress, a broken budget process, the brink of a national default, a looming government shutdown, and the potential downgrading of the U.S. credit rating,” they wrote. “U.S. global leadership and national security are at risk.”
The main reason Peterson and other economists are worried about the national debt is the amount of interest the government has to pay on it. As of November, servicing the national debt ate up 16% of federal spending, about the same as the government spends on defense. That share has risen since the Federal Reserve raised its benchmark interest rate to a 22-year high to combat inflation.
The government mainly borrows money by issuing Treasury securities, which investors and foreign governments buy as ultra-low-risk assets. Amid the Fed’s rate-hiking campaign last year, yields on 10-year Treasurys surged, briefly topping 5% this fall, and are still around 4%—more than double their pre-pandemic levels.
Others point to those same interest statistics as reassurance that the government’s debt is no cause for panic. As the national debt has been growing, so too has the U.S. economic output as measured by gross domestic product (GDP)—which increases the government’s ability to collect taxes and pay what it owes in the future.
“The statistic or metric that I look at most often to judge our fiscal course is net interest as a share of GDP,” Treasury Secretary Janet Yellen said in an interview with CNBC in September. “And even with the rise we have seen in interest rates, that remains at a very reasonable level of around 1%.”
Others view the national debt as more of a long-term problem than a short-term crisis. Another figure economists use to analyze government debt levels is the debt-to-GDP ratio, which measures the national debt as a percentage of GDP. In the second quarter, that figure stood at 119%, although it was only 95% if you don’t count debt the Treasury owes to the government through programs like Social Security and Medicare.
In October, economists at the Penn Wharton School of Business estimated that the national debt would be truly unsustainable if the latter figure—also called debt owed to the public—reached 200% of the GDP, which is on track to occur in roughly 20 years. After that, they estimated that no combination of tax increases or budget cuts could possibly enable the government to pay back its debts.
If you’re worried on behalf of future generations, William D. Lastrapes, a professor of economics at the University of Georgia, offered a simple solution in a 2019 article in The Conversation: Grab a piece of that national debt for your kids.
“Buy Treasury securities with the money saved from low current taxes and bequeath those securities to your kids,” he wrote. “They can use the principal and interest to pay off high future taxes, with no ultimate effect on their net wealth or well-being.”
