Today, total US public debt is approximately $35 trillion. With no fiscal restraint in sight, debt is expected to increase to at least $50 trillion over the next ten years.
A country’s debt level escalates when its spending constantly exceeds its revenue from taxes and other income sources. As of September 2024, the US national debt totaled $35.4 trillion - the highest on record, with no signs of abatement. This accumulation of debt stems primarily from chronic overspending. In FY 2024, the government overspent by around $1.83 trillion relative to its revenue collection. To finance the deficit, the government resorts to borrowing, often through issuance of marketable securities such as treasury bonds.
Given such elevated debt levels, how does the country maintain operational functionality? The answer lies in the debt-to-GDP ratio, which serves as a critical indicator of a nation’s ability to service its debt. Currently US debt-to-GDP stands at approximately 120%. While this is elevated, several other developed nations exhibit even more precarious fiscal situations. For example, Japan’s debt-to-GDP ratio exceeds 200%.
Many economies have accumulated significant debt in the last four years as they resorted to aggressive deficit spending during the pandemic. Servicing this debt is becoming increasingly burdensome. Such high levels of debt has led to growing fiscal sustainability concerns worldwide and in our recent piece The Tidal Wave of Global Debt we examine the profound implications this fiscal backdrop will have on economies and investors in the years to come. We explore this topic more closely in the Fixed Income section.
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