Good Question: How did the U.S. debt get so high? (2024)

Good Question

By Jeff Wagner

/ CBS Minnesota

MINNEAPOLIS — If you wince when look at your monthly credit card bill, you might not believe what the U.S. government has racked up.

The national debt now tops more than $34 trillion. That's a new record difficult to comprehend — and there are no signs of slowing it down.

How did the debt get so high? And will it need to be paid off?

Well, that goal might be wishful thinking.

The debt is one of the rare times people have a chance to use the word "trillion" in a sentence without exaggerating some number.

It stands at $34,009,690,055,595 as of Jan. 9. Elon Musk, the world's richest person, is worth more than $241 billion. You'd need at least 140 of him to equal the debt.

"The first thing is about one-fourth to one-third of it doesn't count," said Christopher Phelan, an economics professor at the University of Minnesota. "It's debt that's held by another part of the government. So, it would be like the wife owing the husband money. It doesn't affect the household. But the rest of it is still a huge number."

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How did the U.S. accrue such a huge debt? One of the main culprits is consistently overspending. When the federal government spends more than its budget, it creates a deficit. In the fiscal year of 2023, it spent about $381 billion more than it collected in revenues.

To pay that deficit, the government borrows money. That can happen by selling marketable securities like treasury bonds. The national debt is the accumulation of the borrowed money, plus interest.

"Right now the federal government is spending 1.5 times as much as its taking in. So, an analogy that I'd like to give is imagine that a couple is making $80,000 between the two of them and spending $120,000 a year," said Phelan. We asked him if the U.S. is the equivalent of a person who only makes the minimum payments on a credit card. Phelan took it a step further saying, "The U.S. is like somebody who makes less than the minimum payment on their credit card."

The country was literally built on debt. It was $75 million in the red after the Revolutionary War thanks to loans from investors and countries like France.

The Civil War led a to a huge spike, raising the debt from $65 million in 1860 to nearly $3 billion in 1865 when the war ended. Costly wars proved to be a theme in our nation's history. The debt was at $49 billion right before the U.S. entered World War II. When the war ended, it was $260 billion. It began rising at a fast rate in the 1980's and was accelerated through events like the Iraq Wars and the 2008 Great Recession. Most recently, the debt made another big jump thanks to the pandemic with the federal government spending significantly more than it took in to keep the country running.

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Who do we owe the money to? "Mostly ourselves," said Phelan. "A lot of pension funds own government debt, money market funds own government debt and then people own those money market funds." The U.S. also has debts to other countries.

Where does the money come from that would go towards paying off the debt? It ultimately comes down to the U.S. taxpayers. That means in order to pay it off, or at least make a larger dent in the debt, the federal government would have to raise taxes and cut spending. "The problem is way bigger than if we just cut foreign aid," said Phelan.

With such a high debt, how does the country function? Phelan said it comes down to the debt to gross domestic product (GDP) ratio. That equation shows a country's ability to pay down its debt. "This ratio is considered a better indicator of a country's fiscal situation than just the national debt number because it shows the burden of debt relative to the country's total economic output and therefore its ability to repay it," according to the U.S. Treasury's website.

The current ratio in the U.S. is about 123 percent as of Sept. 2023. Two decades earlier in 2003, it was down to 60 percet. According to CEIC, the highest the ratio ever reached in the U.S. was 130.6 percent in March 2021, roughly one year into the pandemic.

While the ratio remains high for the country, Phelan said other countries are worse off, yet continue to run. Japan has a debt to GDP ratio that's well over 200 percent, but that doesn't mean countries should comfortably operate at those levels for a long time. "There is a limit, and it's determined by when potential bond buyers say 'I don't think I'm gonna get the money back.' And they demand a huge interest rate for risk of not getting the money back," said Phelan, adding how that concern hasn't happened yet for the U.S.

    In:
  • Debt Ceiling
  • National Debt

Jeff Wagner

Jeff Wagner joined the WCCO-TV team in November 2016 as a general assignment reporter, and now anchors WCCO's Saturday evening newscasts. Although he's new to Minnesota, he's called the Midwest home his entire life.

Good Question: How did the U.S. debt get so high? (2024)

FAQs

Good Question: How did the U.S. debt get so high? ›

In the fiscal year of 2023, it spent about $381 billion more than it collected in revenues. To pay that deficit, the government borrows money. That can happen by selling marketable securities like treasury bonds. The national debt is the accumulation of the borrowed money, plus interest.

How did the U.S. debt get so high? ›

The debt grew steadily into the 20th century and was roughly $22 billion after the country financed its involvement in World War I. Notable recent events triggering large spikes in the debt include the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic.

How did America get in so much debt? ›

Nearly every year, the government spends more than it collects in taxes and other revenue, resulting in a deficit. (The debt ceiling, set by Congress, caps how much the U.S. can borrow to pay for its remaining bills.) The national debt, now at a historic high, is the buildup of its deficits over time.

Why is the U.S. debt not a problem? ›

The government can easily service its debt because of its unlimited taxing authority and ability to issue more US Treasury securities to repay maturing securities.

What major event caused the debt that the US had? ›

The American Civil War resulted in dramatic debt growth. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt grew steadily into the Twentieth Century and was roughly $22 billion as the country paid for involvement in World War I.

Who does the United States owe money to? ›

In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.

How can America get out of debt? ›

  1. Bonds. Using Debt to Pay Debt. ...
  2. Interest Rates. Maintaining interest rates at low levels can help stimulate the economy, generate tax revenue, and, ultimately, reduce the national debt. ...
  3. Spending Cuts. From 1921 to 1974, the President led the government budgeting process. ...
  4. Raising Taxes. ...
  5. Bailout or Default.

What country is not in debt? ›

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.

Can the U.S. pay off its debt? ›

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).

Is the US debt really an issue? ›

Extraordinarily low interest rates allow the U.S. to shoulder a heavier debt burden, but the debt is on an unsustainable course and its size may limit the government's ability or willingness to continue to fight the economic ill effects of the pandemic or future economic downturns.

What country has the most debt? ›

Profiles of Select Countries by National Debt
  • Japan. Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP. ...
  • United States. ...
  • China. ...
  • Russia.

Has the US ever been debt free? ›

However, President Andrew Jackson shrank that debt to zero in 1835. It was the only time in U.S. history when the country was free of debt.

How long can America keep borrowing? ›

The US will borrow money as long as the US exists. Foreign governments will buy US Treasury Bonds as long as such purchases are in their interest. Currently they buy bonds to hold as reserves because US Treasuries are unlikely to lose value.

How long does it take to pay off national debt? ›

It's 22% higher than the U.S. gross national product as of June 30 (about $27 trillion). It's six times the U.S. debt figure in 2000 ($5.6 trillion). Paid back interest-free at the rate of $1 million an hour, $33 trillion would take more than 3,750 years.

Is US government debt sustainable? ›

The Nation's Unsustainable Fiscal Path

Federal debt held by the public (that is, the total amount of money that the federal government owes to its investors) will continue to grow faster than the economy, which is unsustainable.

How bad is US debt compared to the world? ›

The United States has the world's highest national debt at $31.4 trillion. Global debt currently stands at $305 trillion, $45 trillion higher than before the COVID-19 pandemic, according to the Institute of International Finance (IIF) – a global association of the financial industry.

Why is Japan's debt not a problem? ›

Around 70% of Japanese government bonds are purchased by the Bank of Japan, and much of the remainder is purchased by Japanese banks and trust funds, which largely insulates the prices and yields of such bonds from the effects of the global bond market and reduces their sensitivity to credit rating changes.

Who owns the 34 trillion US debt? ›

The $34 trillion gross federal debt includes debt held by the public as well as debt held by federal trust funds and other government accounts.

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