Take a look at the truth about America's $91 trillion debt burden. Learn why paying off the entire debt isn’t necessary, how the debt-to-GDP ratio matters, and the impact of rising debt on the economy.
The US is facing an unprecedented debt of $91 trillion, a staggering amount that raises questions about its impact on the economy and society. Let’s debunk some misconceptions and delve into the realities of this debt burden.
After accumulating large balances, most countries do not fully repay their debts. For example, the debts incurred in the Napoleonic Wars are still owed by Great Britain. In fact, the US doesn't need to pay off all $91 trillion.
Instead, interest payments and the principal of maturing government bonds must be covered. The US spent about $695 billion servicing its debt in the past fiscal year, which amounted to roughly 2.5% of GDP.
However, economists are warning that the cost of servicing debt could increase substantially over the next few years. Projections suggest that total US interest payments could exceed $13 trillion over the next decade.
It is crucial to assess the public debt balance of GDP. Last year, the US debt to GDP ratio remained close to 97% and was well below its vital threshold of 100%.
In other words, it’s essential to consider the resources available relative to the interest and principal payments on that debt. Although the nominal debt may seem staggering, this context offers a more precise perspective.
The rising debt balance poses various problems for the US economy. These include higher inflation, more volatility in the markets and a possibly lesser quality of life for Americans. In order to maintain the nation's long term stability, it is vital that borrowing be slowed down.
Tackling America’s debt problem will require either tax hikes or cuts to benefits, such as social security and health insurance programs, said Karen Dynan, former chief economist at the US Treasury and now professor at the Harvard Kennedy School. “Many (politicians) are not willing to talk about the hard choices that are going to need to be made. These are very serious decisions… and they could be very consequential for people’s lives.”
Kenneth Rogoff, an economics professor at Harvard University, agrees that the US and other countries will have to make painful adjustments.
Debt is “not free anymore,” he told CNN.
The US government spends more on interest payments than on defense. Interest payments will amount to $892 billion, more than the defense budget for this fiscal year, and are expected to be over $1 trillion in the next year. The Congressional Budget Office projects that US debt will reach 122% of GDP within a decade and 166% in 2054, potentially slowing economic growth.
