U.S. National Debt Surges to $35 Trillion: A Political Tug-of-War Threatens Fiscal Stability
Saturday, Aug 17, 2024 7:00 am ET
2min read In late July, the U.S. Treasury Department reported that the total national debt had exceeded $35 trillion. Additionally, as of August 12, the fiscal deficit for the first ten months of the 2024 fiscal year (October 1, 2023, to September 30, 2024) had already reached $1.5 trillion. The long-standing fiscal policies of both the Democratic and Republican parties have contributed to this rapid growth in debt, driving the country further down a path of unsustainable borrowing.
The relentless increase in debt is not a recent phenomenon. Observers attribute the surge in national debt to both parties' unwillingness to curb spending. To win voter support, both parties prefer to increase expenditure, despite the long-term necessity of fiscal restraint. Efforts to control spending and manage debt have faced considerable challenges in Congress.
Desmond Lachman, an economist at a U.S. think tank, points out that Republicans favor tax cuts without reducing public expenditures, while Democrats tend to increase public spending without raising taxes. This results in persistent budget deficits and an unsustainable trajectory of public debt.
The rapid growth in debt is astonishing. From 2017 to 2022, the national debt soared from $20 trillion to $30 trillion. Within a short period in 2023, it further escalated, crossing multiple trillion-dollar milestones. Such rapid growth surpassed projections made by the Congressional Budget Office by five years.
The swift rise in debt is driven by factors such as an aging population, rising medical costs, and insufficient tax revenue. While the COVID-19 pandemic exacerbated fiscal challenges, the debt was already on an unsustainable path before the pandemic. Maya MacGuineas, president of an independent research institute, characterized this borrowing behavior as reckless, indicating that the warning signs have largely been ignored.
High-interest rates have further worsened the situation. In response to unprecedented inflation, the Federal Reserve initiated aggressive rate hikes in March 2022, with the last increase bringing the federal funds rate to its highest level in 23 years. High-interest rates have started to dampen economic activity, significantly raising the cost of servicing the national debt.
Short-term Treasury rates and long-term interest rates have escalated. The daily interest payments on national debt alone exceed $2 billion. Over ten years, the interest expense is expected to outstrip combined expenditures on research, infrastructure, and education.
The Congressional Budget Office predicts that net interest expenditure will nearly double from $892 billion now to $1.7 trillion by 2034. As a proportion of GDP, this spending is projected to grow from 3.1% to 4.1% by 2034, approaching the expenditure levels of Medicare.
Despite market expectations of an interest rate cut by the Fed in September, observers believe this will not significantly affect the high interest costs in the near term. An IMF spokesperson estimated that net interest payments will remain high due to substantial underlying fiscal deficits.
Debt likely won't be the focus for Washington politicians, but many Americans do express concern. Residents like Tom Tillotson from New Hampshire see the massive debt as a pressing issue, urging the federal government to control or reduce the debt for future generations.
Given the approaching presidential elections, neither party is expected to introduce meaningful policies to reduce spending or control debt. Both Trump's Republican campaign and Harris' Democratic platform have largely avoided addressing the debt issue directly.
Without substantial changes in policy, the debt issue is expected to worsen in the coming years. Maya MacGuineas warns that the fiscal outlook is bleak, with debt already being one of the significant risks facing the U.S. Further ignoring this foreseeable danger due to election cycles could have severe long-term repercussions.
The relentless increase in debt is not a recent phenomenon. Observers attribute the surge in national debt to both parties' unwillingness to curb spending. To win voter support, both parties prefer to increase expenditure, despite the long-term necessity of fiscal restraint. Efforts to control spending and manage debt have faced considerable challenges in Congress.
Desmond Lachman, an economist at a U.S. think tank, points out that Republicans favor tax cuts without reducing public expenditures, while Democrats tend to increase public spending without raising taxes. This results in persistent budget deficits and an unsustainable trajectory of public debt.
The rapid growth in debt is astonishing. From 2017 to 2022, the national debt soared from $20 trillion to $30 trillion. Within a short period in 2023, it further escalated, crossing multiple trillion-dollar milestones. Such rapid growth surpassed projections made by the Congressional Budget Office by five years.
The swift rise in debt is driven by factors such as an aging population, rising medical costs, and insufficient tax revenue. While the COVID-19 pandemic exacerbated fiscal challenges, the debt was already on an unsustainable path before the pandemic. Maya MacGuineas, president of an independent research institute, characterized this borrowing behavior as reckless, indicating that the warning signs have largely been ignored.
High-interest rates have further worsened the situation. In response to unprecedented inflation, the Federal Reserve initiated aggressive rate hikes in March 2022, with the last increase bringing the federal funds rate to its highest level in 23 years. High-interest rates have started to dampen economic activity, significantly raising the cost of servicing the national debt.
Short-term Treasury rates and long-term interest rates have escalated. The daily interest payments on national debt alone exceed $2 billion. Over ten years, the interest expense is expected to outstrip combined expenditures on research, infrastructure, and education.
The Congressional Budget Office predicts that net interest expenditure will nearly double from $892 billion now to $1.7 trillion by 2034. As a proportion of GDP, this spending is projected to grow from 3.1% to 4.1% by 2034, approaching the expenditure levels of Medicare.
Despite market expectations of an interest rate cut by the Fed in September, observers believe this will not significantly affect the high interest costs in the near term. An IMF spokesperson estimated that net interest payments will remain high due to substantial underlying fiscal deficits.
Debt likely won't be the focus for Washington politicians, but many Americans do express concern. Residents like Tom Tillotson from New Hampshire see the massive debt as a pressing issue, urging the federal government to control or reduce the debt for future generations.
Given the approaching presidential elections, neither party is expected to introduce meaningful policies to reduce spending or control debt. Both Trump's Republican campaign and Harris' Democratic platform have largely avoided addressing the debt issue directly.
Without substantial changes in policy, the debt issue is expected to worsen in the coming years. Maya MacGuineas warns that the fiscal outlook is bleak, with debt already being one of the significant risks facing the U.S. Further ignoring this foreseeable danger due to election cycles could have severe long-term repercussions.