The US Debt is Currently over $35T. That's $105k for Every Single American. What Does it Really Mean and Can We Ever Repay it?

In the world of US macroeconomics and its numbers, one figure stands out as particularly alarming: the United States national debt has surged to an unprecedented $35.3 trillion. This isn't just an abstract economic indicator—it translates to a burden of $104,920 for every single American, from newborns to centenarians. As the world's largest economy grapples with this mounting financial challenge, we must ask: What does this truly mean for America's future, and is there any realistic path to repayment?

The Debt Dilemma: Understanding America's Fiscal Challenge

To comprehend the magnitude of America's debt situation, we need to delve into the mechanics of national borrowing and its implications. The national debt is fundamentally the result of accumulated annual deficits—years where government spending outpaces revenue.

Historical Context

Historically, significant increases in national debt were often tied to extraordinary circumstances such as major wars or economic depressions. For instance, the debt-to-GDP ratio peaked at 106% following World War II. However, the current situation is markedly different. The United States has reported budget deficits every year since 2001, causing the federal debt balance to rise at an average annual inflation-adjusted pace of 5.7%.

Current State of Affairs

As of 2023, the debt-to-GDP ratio stands at a concerning 124%, the highest level since the end of World War II. This rapid increase has been driven by a combination of factors, including:

1. Decreased tax revenue: From 2015 to 2019, tax revenue collected by the US federal government fell by 1.2% in real terms, despite continued increases in spending.

2. Economic shocks: The bursting of the dot-com bubble in 2000, the 2008 financial crisis, and the COVID-19 pandemic have all contributed to significant jumps in the debt-to-GDP ratio.

3. Persistent structural issues: Unlike previous debt spikes, today's crisis is fueled by long-term, systemic problems.

The Three Major Drivers of America's Growing Debt

Understanding the root causes of America's debt crisis is crucial to grasping its full implications. Three primary factors are pushing the nation's finances to the brink: