How much debt can the US government handle? (2024)

FAQs

How much debt can the US government handle? ›

We estimate that the U.S. debt held by the public cannot exceed about 200 percent of GDP even under today's generally favorable market conditions.

“Governments should borrow and spend carefully during wars, recessions, crises.” But if the debt gets too big, Cochrane cautioned, the government might not be able to respond so decisively next time. The money might be slower to come, and the government might not be able to raise as much.

The bulk of U.S. debt is held by investors, who buy Treasury securities at varying maturities and interest rates. They include domestic and foreign investors, as well as both governmental and private funds. Foreign investors, mostly governments, hold more than 30 percent of the total.

The Federal Government Has Borrowed Trillions, But Who Owns All that Debt? At the end of 2022, the nation's gross debt had reached nearly $31.4 trillion. Of that amount, about $24.5 trillion, or 78 percent, was debt held by the public — representing cash borrowed from domestic and foreign investors.

The Congressional Budget Office (CBO) projects that interest payments will total $870 billion in fiscal year 2024 and rise rapidly throughout the next decade — climbing from $951 billion in 2025 to $1.6 trillion in 2034. In total, net interest payments will total $12.4 trillion over the next decade.

Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).

Singapore is one of Asia's major financial centers. It is also one of the most prosperous countries on the planet. And all this has been achieved without taking on any meaningful public debt. In fact, very much like Norway, Singapore has more assets than debt.

How much is China in debt? ›

The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.

According to the Bank of Russia's estimate, external debt of the Russian Federation as of March 31, 2024 totaled $304.0 billion, having decreased by $12.8 billion, or by 4.1%, since the end of 2023.

There are two kinds of national debt: intragovernmental and public. Intragovernmental is debt held by the Federal Reserve and Social Security and other government agencies. Public debt is held by the public: individual investors, institutions, foreign governments.

Our fiscal health is declining in large part because of rapidly growing debt levels relative to the size of the U.S. economy. Large annual budget deficits drive debt growth, as the government borrows to finance spending that exceeds revenues. For example, the federal budget deficit in FY 2023 was $1.7 trillion.

Tax hikes alone are rarely enough to stimulate the economy and pay down debt. Governments often issue debt in the form of bonds to raise money. Spending cuts and tax hikes combined have helped lower the deficit. Bailouts and debt defaults have disadvantages but can help a government solve a debt problem.

What Is the Current Situation? The Treasury has already reached the current debt limit of $31.4 trillion, so it has no room to borrow under its standard operating procedures, other than to replace maturing debt.

“The answer, in one word, is inflation,” says Alan Cole, senior economic policy analyst at The Conference Board, a business-focused think tank. “[That's] the binding constraint on governments, in the end, that keeps them from issuing gobs of currency and buying whatever they want with it.”