What The National Debt Surpassing $35 Trillion Really Means For The US

Everywhere you look, debt seems to be on the rise. Between U.S. household debt hitting $17.69 trillion in the first quarter of 2024 to credit card debt hitting $1.12 trillion, Americans are financially struggling. And while you might understand how personal debt snowballs and leads to bigger issues, you might not be as familiar with how the national debt works. As of the last week of July, the U.S. national debt surpassed $35 trillion, the highest in United States history. This impacts not just the economy but it also limits the government's ability to continue to provide support and necessary programs in the face of mounting debts.

At its simplest, the national debt is the amount of money the federal government has previously borrowed in order to cover the outstanding balance of its expenses. These expenses are incurred over time when government spending exceeds revenue collected from taxes. This is known as a budget deficit, and it happens to be a particular concern in 2024, thanks to a combination of tax cuts put in place under the previous Trump administration and a spike in spending under the current Biden administration.

It doesn't help that the country currently has its highest interest rates in two decades (thanks to the Federal Open Market Committee, the Federal Reserve committee that sets interest rates). This makes the cost of carrying a debt even more expensive for the U.S. than before, magnifying the country's budget discrepancy and ensuring it takes even longer to close the financial gap.

It's important to understand what all goes into the national debt total. Both non-marketable and marketable securities comprise the national debt, with some debt held by the public and some by the government itself (aka intragovernmental). When the United States faces a budget deficit, the federal government borrows money by selling marketable securities (things like Treasury bonds, bills, notes, and Treasury inflation-protected securities) to investors. This means that the national debt includes both the initial principal borrowed amount as well as the associated interest owed on that amount. This contributes to the national debt growing in the same ways that not paying off your credit card bill in full every month leads to you paying even more long term.

While higher spending for special programs (such as infrastructure) can increase the government's deficit short term, there are several high-spending categories that exist all of the time. For instance, income security (which includes unemployment, federal employee retirement, and food assistance programs), Social Security (which has a less than clear future), Medicare, and the national defense budget all cost the U.S. government trillions of dollars every fiscal year. According to the FY 2024 spending budget, the top spending category for the government is Medicare at 16.7% ($1.2 trillion), followed by Social Security at 16.4% and the national defense budget at 13.5%. Big-ticket items, such as Medicare and Social Security, are often the programs most at risk of facing budget cuts.

The U.S. has always carried some amount of debt (the American Revolutionary War, for example, got the gross national debt started toward $35 trillion with a $75 million financing for war materials). Yet, more recent specific circumstances have pushed the country's debt total to its current extreme heights. Contributing events include the Afghanistan and Iraq Wars, the 2008 recession, and the COVID-19 pandemic.

In fact, spending increased 50% between FY 2019 and FY 2021 due to pandemic tax cuts, stimulus programs, increased spending, and decreased tax revenues resulting from widespread unemployment. In much the same way the stock market is affected by natural disasters, the government's debt is similarly connected to current events.

Along with surpassing $35 trillion in debt, another scary milestone the U.S. has hit, however, is its debt-to-GDP ratio. Generally speaking, comparing a country's gross domestic product to its debt can provide a more detailed look at a country's ability to pay down its debt rather than just looking at the national debt total alone. Comparing the two figures allows you to understand how significant the debt burden is compared to the country's output (which, in turn, means its ability to repay its debt).

Unfortunately, the United States surpassed 100% in this debt ratio a decade ago in 2013, meaning with every year, it becomes increasingly less likely the U.S. will actually be able to pay off its debts. Not to mention, the more rapid growth in the nation's national debt has pushed debt numbers even higher, with the country's debt-to-GDP ratio hitting 123% in 2023.