National Debt: Fiscal Tsunami or Ripple?

Good to Know

This blog article is the first in a three-part series, including:

  1. Federal agency perspectives,
  2. Private sector perspectives, and
  3. Summary comparison.

“The growing [national] debt could create additional challenges for federal fiscal management, which could in turn cause challenges for American households and individuals, too. These potential challenges include:

  • Risks to economic growth and lower investment in the private sector. These issues could lead to lower wages due to losses in productivity [resulting from lower investment in the private sector].
  • Upward pressure on interest rates that would make it more expensive for individuals to borrow money-for example to purchase a car or home.”

This recent quote from the Government Accountability Office article frames the fiscal threat for many, but not all, experts. For context, the GAO is considered by many as an independent, non-partisan agency.

The Debt Level is No Mystery

According to the GAO, “The debt is growing because the country keeps borrowing to finance an increasingly large gap between government spending and revenue. The underlying conditions of the problem have existed for over two decades. Every fiscal year since 2002, the federal government has run a deficit—meaning spending exceeds its revenues—and added to its debt.” Stated another way, there’s no mystery of how we got here.

But here’s an interesting question, how much does the debt level matter?  According the Congressional Budget Office, “the risks and threats of high and rising federal debt and deficits” can include:

  • Reduced economic growth,
  • Higher interest payments to foreign investors,
  • Increased risk of a fiscal crisis,
  • Vulnerability to higher interest rates, and
  • Less fiscal space to respond to emergencies and other priorities.”

The scope of this article does not permit a detailed discussion of each of these potential economic risks, but next we’ll discuss the sharp rise in interest payments on federal debt, which is fueled partially by increasing interest rates.

Interest on Federal Debt

Interest payments on the federal debt is rising at what some would say a breath-taking rate. As indicated in the chart to the right, interest payments are projected to rise to almost $1 trillion by 2029. That’s a 230% rise in just 17 years.

Interest payments include interest paid on non-marketable federal debt that is not publicly traded (e.g., Social Security “Trust Fund” Treasury Bonds) and marketable, publicly traded Treasury Bonds. For context, the interest we’re projected to pay on federal debt by 2029 is more than the entire economic output (GDP) of all but 5 individual states.

But is the raw number of interest dollars paid cause for alarm or should we also compare national debt to national GDP?

Debt to GDP Ratio

One commonly held measure of a healthy amount of governmental debt is the Debt to GDP (Gross Domestic Product) ratio.

According to the GAO, the meteoric rise in our Debt to GDP ratio since the year 2000 means “the federal government faces an unsustainable fiscal future.”

While not every economist agrees that a ratio of over 100% is cause for immediate alarm, most believe that the rate of growth since the year 2000 is not economically sustainable.


The author’s takeaway from these GAO and CBO perspectives is that action is needed by Congress and the Administration to avoid a fiscal tsunami. As you might expect, opinions differ, especially among private sector economists, and that is the topic of our next blog article.

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