Last week it was reported that our national debt officially has surpassed 100% of our GDP (gross domestic product). Our national debt (as of the report) now totals $31.27 trillion, while GDP stands at $31.22 trillion.
This marks the first time since WWII — when the country went heavily into debt to pay for the war effort — that the national debt has exceeded our GDP.
For those who assert that our national debt is out of control, this milestone (if you can call it that) is an ominous sign. The alarmists assert that this high level of debt is unsustainable and eventually will wreak havoc on our economy.
There is a lot of truth to that position. The interest cost on the national debt now exceeds $1 trillion each year. This is more than we spend on anything else in our national budget (including Medicare and defense) other than Social Security.
Moreover, there is no end in sight to our escalating national debt. The tax cuts enacted by Congress last year in the so-called Big Beautiful Bill, which primarily benefit the very wealthy, will reduce revenue by trillions over the coming years.
Those who have asserted in the past that the federal government’s growing debt was not a problem relied on low interest rates to support their position. It made sense, they said, for the government to borrow when interest rates were low.
In 2020 for example, the U.S. government paid an interest rate of approximately 1.6% on our outstanding debt and interest payments totaled approximately $345 billion.
But now we are paying almost triple that rate and almost triple that annual payment. Moreover, the interest payments on the debt are predicted to double to $2 trillion annually by 2036.
By contrast, within the two decades after World War II, the country’s debt-to-GDP ratio had been reduced to 34%. But given the present trajectory, the debt-to-GDP ratio is projected to reach 125% by 2036. To be sure, there is nothing magical about our debt-to-GDP ratio exceeding 100%. Yes, it sounds bad, but what effect it will have on our economy is anyone’s guess — and about all anyone can say is that only time will tell whether we have reached a tipping point.