CBO risk factors The CBO reported several types of risk factors related to rising debt levels in a July 2010 publication: • A growing portion of savings would go towards purchases of government debt, rather than investments in productive capital goods such as factories and computers, leading to lower output and incomes than would otherwise occur; • If higher marginal tax rates were used to pay rising interest costs, savings would be reduced and work would be discouraged; • Rising interest costs would force reductions in government programs; • Restrictions to the ability of policymakers to use fiscal policy to respond to economic challenges; and • An increased risk of a sudden fiscal crisis, in which investors demand higher interest rates.
Credit default The U.S. has never fully defaulted. In April 1979, however, the U.S. may have technically defaulted on $122 million (~$ in ) in
Treasury bills, which was less than 1% of U.S. debt. The Treasury Department characterized it as a delay rather than as a default, but it did have consequences for short-term interest rates, which jumped 0.6%. Others view it as a temporary, partial default. The Fourth Liberty Loan of 1918
was not redeemed in gold.
Debt ceiling The United States debt ceiling is a legislative constraint on the amount of national debt that can be incurred by the
U.S. Treasury. It limits how much money the federal government may pay on the debt it already has by borrowing even more money. The debt ceiling applies to almost all federal debt, including accounts owned by the public and intra-government funds for
Medicare and
Social Security.
Definition dispute of public debt Economists also debate the definition of public debt. Krugman argued in May 2010 that the debt held by the public is the right measure to use, while Reinhart has testified to the President's Fiscal Reform Commission that gross debt is the appropriate measure. There is debate regarding the economic nature of the intragovernmental debt, which was approximately $4.6 trillion in February 2011. For example, the CBPP argues: that "large increases in [debt held by the public] can also push up interest rates and increase the amount of future interest payments the federal government must make to lenders outside of the United States, which reduces Americans' income. By contrast, intragovernmental debt (the other component of the gross debt) has no such effects because it is simply money the federal government owes (and pays interest on) to itself."
Interest and debt service costs Interest expense on the public debt was approximately $678 billion in FY 2023. During FY 2023, the government also accrued a non-cash interest expense of $197 billion for intragovernmental debt, primarily the Social Security Trust Fund, for a total interest expense of $875 billion. This accrued interest is added to the Social Security Trust Fund and therefore the national debt each year and will be paid to Social Security recipients in the future. However, since it is a non-cash expense it is excluded from the budget deficit calculation. The federal debt at the end of the 2018/19 fiscal year (ended September 30, 2019) was $22.7 trillion (~$ in ). The portion that is held by the public was $16.8 trillion. Neither figure includes approximately $2.5 trillion owed to the government. Interest on the debt was $404 billion. The cost of servicing the U.S. national debt can be measured in various ways. The CBO analyzes net annual interest as a percentage of GDP, with a higher percentage indicating a higher interest payment burden. During 2015, this was 1.3% GDP, close to the record low 1.2% of the 1966–1968 era. The average from 1966 to 2015 was 2.0% of GDP. However, the CBO estimated in 2016 that the interest amounts and % GDP will increase significantly over the following decade as both interest rates and debt levels rise: "Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO's baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3% of GDP, to $799 billion in 2024, or 3.0% of GDP—the highest ratio since 1996." According to a study by the
Committee for a Responsible Federal Budget (CRFB), the U.S. government will spend more on servicing their debts than they do for their national defense budget by 2024. In October 2023, yields for 10-year
Treasury notes breached 5% as traders adjusted their assessment of United States' fiscal position and lowered their expectation that Congress or the White House would take any action to improve it. The impact was felt by homebuyers, with 30-year mortgage rate at its highest in two decades, and corporations facing higher costs of borrowing. Interests paid by the federal government jumped by $184 billion during the 2022 fiscal year and are still climbing.
Intergenerational equity One debate about the national debt relates to intergenerational equity. For example, if one generation is receiving the benefit of government programs or employment enabled by deficit spending and debt accumulation, to what extent does the resulting higher debt impose risks and costs on future generations? There are several factors to consider: • For every dollar of debt held by the public, there is a government obligation (generally marketable Treasury securities) counted as an asset by investors. Future generations benefit to the extent these assets are passed on to them. • As of 2010, approximately 72% of the financial assets were held by the wealthiest 5% of the population. This presents a wealth and income distribution question, as only a fraction of the people in future generations will receive principal or interest from investments related to the debt incurred today. • To the extent the U.S. debt is owed to foreign investors (approximately half the "debt held by the public" during 2012), principal and interest are not directly received by U.S. heirs. • For every dollar of intragovernmental debt, there is an obligation to specific program recipients, generally non-marketable securities such as those held in the Social Security Trust Fund. Adjustments that reduce future deficits in these programs may also apply costs to future generations, via higher taxes or lower program spending. Krugman wrote in March 2013 that by neglecting public investment and failing to create jobs, we are doing far more harm to future generations than merely passing along debt: "Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we're doing to the next generation's economic prospects. But our sin involves investing too little, not borrowing too much." Young workers face high unemployment and studies have shown their income may lag throughout their careers as a result. Teacher jobs have been cut, which could affect the quality of education and competitiveness of younger Americans.
Military implications In
Debt: The First 5,000 Years, left-wing anthropology professor
David Graeber argues the purchasing of US treasury bonds by other countries makes them "to some degree beholden to U.S. interests, rather than the other way around" because the US gains
hard power in the transaction by spending their loan money on maintaining their
hundreds of military bases throughout the world. Graeber compares this process with empires throughout history demanding
tributes from subject countries to fuel military conquests, saying the only difference is that the US uses implied threats to pressure the subject country into giving loans and in doing so, creates a guise that the US is the lesser power in the transaction. Graeber argues if the US were to lose its
superpower status, the hard power threat underpinning the loans would be gone which would cause countries to distance themselves from US treasury bonds and possibly demand full loan repayments militarily.
National security implications According to a 2013
Forbes article, many American and other
economic analysts have expressed concerns on the amount of United States government debt the People's Republic of China is holding as part of their reserves. The
National Defense Authorization Act of FY 2012 included a provision requiring the
Secretary of Defense to conduct a "national security risk assessment of U.S. federal debt held by China." The department issued its report in July 2012, stating that "attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States." An August 19, 2013
Congressional Research Service report said that the threat is not credible and the effect would be limited even if carried out. The report said that the threat would not offer "China deterrence options, whether in the diplomatic, military, or economic realms, and this would remain true both in peacetime and in scenarios of crisis or war." A 2010 article by
James K. Galbraith in
The Nation, defends deficits and dismisses concerns over foreign holdings of United States government debt denominated in U.S. dollars, including China's holdings. In 2010,
Warren Mosler, wrote that "When[ever] the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed." Australian economist
Bill Mitchell argued that the United States government had a "nearly infinite capacity...to spend." Against the backdrop of escalating Sino-U.S. tensions in 2020, Yuzo Sakai, a manager at Ueda Totan Forex Ltd., said that if China undertakes a massive sales of U.S. bonds, investors may flock to the
Japanese yen as a safe-haven currency. Since 2018, China had been gradually decreasing its holdings of U.S. federal debt, bringing the total to $1.07 trillion in June 2020, behind Japan who became the biggest foreign creditor of the United States. Stephen Nagy, a professor at the
International Christian University, said a sell-off by China "might damage the United States in the short term" but also cause "critical economic instability" in the Chinese and global economy.
Jeff Kingston, a professor and director of Asian Studies at
Temple University, Japan, echoed the view, adding that dumping would lower the price of U.S. bonds, making it more attractive to other countries. According to an
institutional investor, however, it may be difficult for Japan to boost its already large holdings of U.S. government debt, as such a move could be seen as "currency manipulation". Responding to Donald Trump's argument for a $500 billion increase in defense spending in 2026, Romina Boccia of the
Cato Institute remarked that the Congressional Budget Office had already projected debt to rise to "fiscally dangerous levels" in the following decades. She noted, "Excessive debt slows economic growth, reduces income levels, raises interest rates, and constrains funding for core government functions, like national defense. ...financing a larger military by borrowing yet more, when interest costs on the existing debt already exceed what the nation spends on defense, becomes fiscally untenable."
Risks to economic growth Debt levels may affect economic growth rates. In 2010, economists
Kenneth Rogoff and
Carmen Reinhart reported that among the 20 developed countries studied, average annual GDP growth was 3–4% when debt was relatively moderate or low (i.e., under 0.60 times GDP), but it dips to just 1.6% when debt was high (i.e., above 0.90 times GDP). In April 2013, the conclusions of Rogoff and Reinhart's study came into question when a coding error in their original paper was discovered by Herndon, Ash and Pollin of the
University of Massachusetts Amherst. Herndon, Ash and Pollin found that after correcting for errors and unorthodox methods used, there was no evidence that debt above a specific threshold reduces growth. Reinhart and Rogoff maintain that after correcting for errors, a negative relationship between high debt and growth remains. However, other economists, including
Paul Krugman, have argued that it is low growth which causes national debt to increase, rather than the other way around. Commenting on
fiscal sustainability, former Federal Reserve Chairman
Ben Bernanke stated in April 2010 that "Neither experience nor economic theory clearly indicates the threshold at which government debt begins to endanger prosperity and economic stability. But given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time."
Sustainability In 2009 the Government Accountability Office (GAO) reported that the United States was on a "fiscally unsustainable" path because of projected future increases in Medicare and Social Security spending. According to the Treasury report in October 2018, summarized by
Business Insider's Bob Bryan, the U.S. federal budget deficit rose as a result of the Tax Cuts and Jobs Act of 2017 and the
Consolidated Appropriations Act, 2018 signed into law on March 23, 2018. ==COVID-19 pandemic and aftermath==