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Charting America’s Debt: $27 Trillion and Counting

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America's Debt Infographic

Why America’s Debt Doesn’t Stop Growing

Public sector debt has been a contentious topic for many years. While some believe that excessive government borrowing can be harmful over the long term, others have argued that it acts as a powerful tool for stimulating growth.

In the U.S., the latter view appears to have taken hold. Since 2008, America’s national debt has surged nearly 200%, reaching $27 trillion as of October 2020. To gain a better understanding of this ever-growing debt, this infographic takes a closer look at various U.S. budgetary datasets including the 2019 fiscal balance.

America’s Debt vs. GDP

Government debts are often represented by incredibly large numbers, making them hard to comprehend. By comparing America’s debt to its annual GDP, we can get a better grasp on the relative size of the country’s financial obligations.

YearTotal Public Debt (USD)GDP (USD)Debt as % of GDP
1994$4.5T$7.1T63%
1995$4.8T$7.5T64%
1996$5.0T$7.9T63%
1997$5.3T$8.4T63%
1998$5.5T$8.9T62%
1999$5.6T$9.4T60%
2000$5.8T$10.0T58%
2001$5.7T$10.5T54%
2002$5.9T$10.8T55%
2003$6.4T$11.2T57%
2004$7.0T$11.9T59%
2005$7.6T$12.8T59%
2006$8.2T$13.6T60%
2007$8.7T$14.2T61%
2008$9.2T$14.7T63%
2009$10.6T$14.4T74%
2010$12.3T$14.7T84%
2011$14.0T$15.3T92%
2012$15.2T$16.0T95%
2013$16.4T$16.6T99%
2014$17.3T$17.1T101%
2015$18.1T$18.0T101%
2016$18.9T$18.5T102%
2017$19.9T$19.2T104%
2018$20.5T$20.2T101%
2019$21.9T$21.1T104%
2020$23.2T$21.6T107%
April 2020$23.7T$19.5T122%

Source: Federal Reserve, U.S. Treasury

In this context, U.S. debt was relatively moderate between 1994 to 2007, averaging 60% of GDP over the timeframe. This took a drastic turn during the Global Financial Crisis, with debt climbing to 95% of GDP by 2012.

Since then, America’s debt has only increased in relative size. In April 2020, with the COVID-19 pandemic in full force, it reached a record 122% of GDP. This may sound troubling at first, but there are a few caveats.

For starters, there are many other advanced economies that have also surpassed the 100% debt-to-GDP milestone. The most noteworthy is Japan, where the debt-to-GDP ratio has climbed beyond 200%. Furthermore, this is not the first time America has found itself in this situation—by the end of World War II, debt-to-GDP peaked at 106% before declining to historic lows in the 1970s.

What’s Preventing the Debt From Shrinking?

Although the U.S. continuously pays off portions of its debt, the total amount it owes has increased each year since 2001. That’s because the federal government runs consistent budget deficits, meaning it spends more than it earns. During economic crises, these deficits can become incredibly large.

Fiscal Year (Sept 30)Budget Surplus or Deficit (USD billions)
2000+$236B
2001+$128B
2002-$158B
2003-$378B
2004-$418B
2005-$318B
2006-$248B
2007-$161B
2008-$458B
2009-$1,412B
2010-$1,294B
2011-$1,299B
2012-$1,076B
2013-$680B
2014-$485B
2015-$441B
2016-$585B
2017-$665B
2018-$779B
2019-$984B
2020-$3,131B

Source: Federal Reserve

In the aftermath of the Global Financial Crisis, the U.S. recorded an annual deficit of $1.4 trillion in FY2009. This was largely due to the $787 billion American Recovery and Reinvestment Act of 2009, which provided tax rebates and other economic relief.

In the economic battle against COVID-19’s impacts, the boundaries have been pushed even further. The annual deficit for FY2020 weighs in at a staggering $3.1 trillion, the largest ever. Contributing to this historic deficit was the $2 trillion CARES Act, which provided wide-ranging support to the entire U.S. economy.

Breaking Down the 2019 Fiscal Balance

Even in the years between these two economic crises, government spending still outpaced revenues. To find out more, we’ve broken down the 2019 fiscal balance into its various components.

Federal Spending

Total spending in FY2019 was roughly $4.4 trillion, and can be broken out into three components.

The first component is Mandatory Spending, which accounted for 62% of the total. Mandatory spending is required by law, and includes funding for important programs such as social security.

CategoryAmount (USD billions)Percent of Total Federal Spending
Health programs$1,121B25.5%
Social security$1,039B23.6%
Income security$301B6.8%
Federal civilian and military retirement$164B3.7%
Other$109B2.5%
Total mandatory spending$2,735B62.2%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

The largest category here was Health, with $1.1 trillion in funding for programs such as Medicare and Medicaid. Social security, which provides payments to retirees, was the second largest at $1.0 trillion.

The second component is Discretionary Spending, which accounted for 30% of the total. Discretionary spending is determined on an annual basis by Congress and the President.

Discretionary SpendingAmount (USD)Share of Total Federal Spending
Defense$677B15.4%
Transportation$100B2.3%
Veteran's benefits & services$85B1.9%
Education$72B1.6%
Health$66B1.5%
Administration of justice$59B1.3%
International affairs$52B1.2%
General government$51B1.2%
Housing assistance$49B1.1%
Natural resources and environment$44B1.0%
General science, space, and technology$32B0.7%
Community and regional development$27B0.6%
Training, employment, and social services$23B0.5%

Total discretionary spending


$1,338B


30.4%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

At $677 billion, the Defense category represents over half of total discretionary spending. These funds are spread across the five branches of the U.S. military: the Army, Marine Corps, Navy, Air Force, and Space Force.

The third component of spending is the net interest costs on existing government debt. For FY2019, this was approximately $327 billion.

Federal Revenues

Revenues in FY2019 fell short of total spending, coming in at approximately $3.5 trillion. These inflows can be traced back to six categories.

CategoryAmount (USD billions)Percent of Total Revenues
Individual income taxes$1,732B50.0%
Payroll taxes$1,247B36.0%
Corporate income taxes$242B7.0%
Other$104B3.0%
Excise taxes$104B3.0%
Customs duties$69B2.0%
Total revenues$3,464B100.0%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

Revenues overwhelmingly relied on individual income and payroll taxes, which together, accounted for 86% of the total. Corporate income taxes, on the other hand, accounted for just 7%.

Is America’s Debt a Cause for Concern?

The general consensus following the events of 2008 is that large fiscal stimulus (supported by government borrowing) was effective in speeding up the consequent recovery.

Now facing a pandemic, it’s likely that many Americans would support the idea of running large deficits to boost the economy. Surveys released in July 2020, for example, found that 82% of Americans wanted federal relief measures to be extended.

Looking beyond COVID-19, however, does reveal some warning signs. One frequent criticism of the ever-growing national debt is its associated interest costs, which could cannibalize investment in other areas. In fact, the effects of this dilemma are already becoming apparent. Over the past decade, the U.S. has spent more on interest than it has on programs such as veterans benefits and education.

us federal net interest costs chart

With low interest rates expected for the foreseeable future, the federal government is likely to continue running its large annual deficits—at least until the effects of COVID-19 have fully subsided. Perhaps after this crisis is over, it will be time to assess the long-term sustainability of America’s rising national debt.

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Charting the Rise of America’s Debt Ceiling

By June 1, a debt ceiling agreement must be finalized. The U.S. could default if politicians fail to act—causing many stark consequences.

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Charting the Rise of America’s Debt Ceiling

Every few years the debt ceiling standoff puts the credit of the U.S. at risk.

In January, the $31.4 trillion debt limit—the amount of debt the U.S. government can hold—was reached. That means U.S. cash reserves could be exhausted by June 1 according to Treasury Secretary Janet Yellen. Should Republicans and Democrats fail to act, the U.S. could default on its debt, causing harmful effects across the financial system.

The above graphic shows the sharp rise in the debt ceiling in recent years, pulling data from various sources including the World Bank, U.S. Department of Treasury, and Congressional Research Service.

Familiar Territory

Raising the debt ceiling is nothing new. Since 1960, it’s been raised 78 times.

In the 2023 version of the debate, Republican House Majority Leader Kevin McCarthy is asking for cuts in government spending. However, President Joe Biden argues that the debt ceiling should be increased without any strings attached. Adding to this, the sharp uptick in interest rates have been a clear reminder that rising debt levels can be precarious.

Consider that historically, interest payments on the U.S. debt have been equal to about half the cost of defense. More recently, however, the cost of servicing the debt has risen, and is now almost on par with the defense budget as a whole.

Key Moments In Recent History

Over history, raising the debt ceiling has often been a typical process for Congress.

Unlike today, agreements to raise the debt ceiling were often negotiated faster. Increased political polarization over recent years has contributed to standoffs with damaging consequences.

For instance, in 2011, an agreement was made just days before the deadline. As a result, S&P downgraded the U.S. credit rating from AAA to AA+ for the first time ever. This delay cost an estimated $1.3 billion in extra costs to the government that year.

Before then, the government shut down twice between 1995 and 1996 as President Bill Clinton and Republican House Speaker Newt Gingrich went head-to-head. Over a million government workers were furloughed for a week in late November 1995 before the debt limit was raised.

What Happens Now?

Today, Republicans and Democrats have less than two weeks to reach an agreement.

If Congress doesn’t make a deal the result would be that the government can’t pay its bills by taking on new debt. Payment for federal workers would be suspended, certain pension payments would get stalled, and interest payments on Treasuries would be delayed. The U.S. would default under these conditions.

Three Potential Consequences

Here are some of the potential knock-on effects if the debt ceiling isn’t raised by June 1, 2023:

1. Higher Interest Rates

Typically investors require higher interest payments as the risk of their debt holdings increase.

If the U.S. fails to pay interest payments on its debt and gets a credit downgrade, these interest payments would likely rise higher. This would impact the U.S. government’s interest payments and the cost of borrowing for businesses and households.

High interest rates can slow economic growth since it disincentivizes spending and taking on new debt. We can see in the chart below that a gloomier economic picture has already been anticipated, showing its highest probability since 1983.

Probability of a U.S. Recession based on Treasury Spreads

Historically, recessions have increased U.S. deficit spending as tax receipts fall and there is less income to help fund government activities. Additional fiscal stimulus spending can also exacerbate any budget imbalance.

Finally, higher interest rates could spell more trouble for the banking sector, which is already on edge after the collapse of Silicon Valley Bank and Signature Bank.

A rise in interest rates would push down the value of outstanding bonds, which banks hold as capital reserves. This makes it even more challenging to cover deposits, which could further increase uncertainty in the banking industry.

2. Eroding International Credibility

As the world’s reserve currency, any default on U.S. Treasuries would rattle global markets.

If its role as an ultra safe asset is undermined, a chain reaction of negative consequences could spread throughout the global financial system. Often Treasuries are held as collateral. If these debt payments fail to get paid to investors, prices would plummet, demand could crater, and global investors may shift investment elsewhere.

Investors are factoring in the risk of the U.S. not paying its bondholders.

As we can see this in the chart below, U.S. one-year credit default swap (CDS) spreads are much higher than other nations. These CDS instruments, quoted in spreads, offer insurance in the event that the U.S. defaults. The wider the spread, the greater the expected risk that the bondholder won’t be paid.

Additionally, a default could add fuel to the perception of global de-dollarization. Since 2001, the USD has slipped from 73% to 58% of global reserves.

Since Russia’s invasion of Ukraine led to steep financial sanctions, China and India are increasingly using their currencies for trade settlement. President of Russia Vladimir Putin says that two-thirds of trade is settled in yuan or roubles. Recently, China has also entered non-dollar agreements with Brazil and Kazakhstan.

3. Financial Sector Turmoil

Back at home, a debt default would hurt investor confidence in the U.S. economy. Coupled with already higher interest rates impacting costs, financial markets could see added strain. Lower investor demand could depress stock prices.

Is the Debt Ceiling Concept Flawed?

Today, U.S. government debt stands at 129% of GDP.

The annualized cost of servicing this debt has jumped an estimated 90% compared to 2011, driven by increasing debt and higher interest rates.

Some economists argue that the debt ceiling helps keep the government more fiscally responsible. Others suggest that it’s structured poorly, and that if the government approves a level of spending in its budget, that debt ceiling increases should come more automatically.

In fact, it’s worth noting that the U.S. is one of the few countries worldwide with a debt ceiling.

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