2023-04-23 07:33:11
The average person can hardly imagine the enormous size of the American national debt. For example, compared to the average American mortgage, the current level of national debt is 230 million times greater.
Visual Capitalist’s Julie Peasley shows in this graph how many one-dollar bills it would take to cover the entire US debt of $31.4 trillion.
How did the US debt get so high?
The U.S. national debt refers to how much money the federal government owes its creditors. If the government spends more than it earns, it runs a budget deficit and has to issue debt in the form of government bonds.
In the USA, in the last 20 years, there has always been a deficit in the budget, which significantly increased the national debt. According to the Treasury Department, the current debt is $31.4 trillion.
Accumulated in one-dollar bills, the US debt would be almost eight times the 110-story Willis Tower in Chicago.
The last time the government had a surplus was in 2001, when the debt grew by only 2% due to interest costs. The US debt stock jumped the most during the global financial crisis, when it had three consecutive years of double-digit growth. After that, there was a significant increase in 2020 due to the COVID-19 measures.
The US debt rises during a recession because government revenues, primarily taxes, fall. At the same time, the government is increasing spending to promote economic recovery.
Nowadays, the USA is more with financial problems faces. As the nation’s aging population continues to grow and people live longer, this puts enormous pressure on programs that serve aging citizens, such as Social Security. Health care is also becoming more expensive, and its share of the US budget is the second fastest growing part.
Advantages and disadvantages of debt
The U.S. debt helps fund programs that are critical to Americans, including pension and disability benefits, health care, economic security, and national defense.
As one example of the impact of these programs, income security reduced the percentage of the population living below the poverty line by almost half in 2019, from 22.8% to 12.2%.
Of course, the growth of the US debt also comes with challenges. One of the main concerns is paying the interest costs on the US debt, especially as interest rates rise.
Before the rate hikes began, interest costs accounted for 6% of the US budget in fiscal year 2021. In December 2022, they already accounted for 15% of government spending.
Dealing with the problem
In January 2023, the United States reached the debt ceiling, also known as the borrowing limit. While some countries tie their debt to GDP, the United States sets an exact limit expressed in dollars.
The government would run out of money to pay off the debt this summer if the ceiling is not raised. However, policymakers have repeatedly agreed to raise the debt ceiling in the past to avoid default. In 2011, the United States narrowly avoided default and a subsequent downgrade of the country’s credit rating thanks to a last-minute debt ceiling hike.
Dealing with America’s debt is simple in theory: raise taxes or raise the debt limit, cut spending, or a combination of all three. However, this is much more difficult to do in practice. What taxes should be raised? Which programs should be reduced? What happens the next time we hit the debt limit?
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