National Debt of the America Compare to Its GDP
A person accumulates debt when they spend more than their income and don’t pay off the balance each month. Similarly, nations build up debt over time when they spend more than their revenue and don’t balance budgets each year. The ratio of a nation’s debt to its GDP represents this level of borrowing. When this debt rises to an uncomfortable amount, the government must raise taxes or cut spending programs to make up the difference and reduce the deficit.
The size of a country’s national debt is a key indicator of its overall financial health, but there are many reasons why the debt might grow or fall. It might reflect the country’s economic policies or even a particular president’s political agenda. In addition, debt levels could fluctuate from year to year depending on the level of interest rates and inflation.
Regardless of the reason, the current levels of the America national debt are worrying. The Congressional Budget Office (CBO) projects that public debt will be equal to 181% of the nation’s GDP by 2053, which is a record high. Public debt includes money that investors owe the Treasury, including the Federal Reserve, as well as money owed by Social Security and Medicare beneficiaries to the trust funds for those benefits.
How Does the National Debt of the America Compare to Its GDP?
One of the main reasons that debt is growing so fast is that the federal government is consistently spending more than it brings in in revenue each year. In fact, during the fiscal year of 2023, the government spent $381 billion more than it took in. The remaining balance is known as a deficit, and it can only be paid off by selling marketable securities like Treasury bonds. When a government sells bonds, that money is referred to as the “debt.”
The interest payments associated with this debt account for more than half of the federal budget’s total outlays. That’s more than the government spends on veterans’ benefits and services, elementary and secondary education, foreign aid, agriculture, natural resources and the environment, and research and development combined.
The CBO’s projections show that the debt will continue to rise relative to GDP in the foreseeable future, especially after 2033. That’s because population aging and rising costs for entitlements will increase the cost of the federal government’s operations.
Whether or not the debt will stabilize depends on many factors, including the nation’s growth and the ability of Congress and the White House to agree on policies that sustainably reduce the deficit.
How the borrowed money is used might be more important than the absolute number of dollars or its proportion of GDP. For example, if the government uses its debt to improve the economy’s productive potential, the returns on that investment might exceed the borrowing costs. This kind of investment might also help reduce the deficit in the long run. However, if the government uses its debt to buy goods and services that do not add value to the economy, it may be better to cut spending instead.