Since its significant growth following the abandonment of the ‘Bretton Woods system’ in the early 1970s, and the unprecedented acceleration after the ‘Economic Recovery Tax Act’ of 1981, the U.S. national debt has been a hotly debated topic.
The debate intensified in recent years due to the effects of the 2008 crisis and the associated rise in debt, and even more so due to the unprecedented public burden during and after the COVID-19 pandemic.
Recently, the discussion gained momentum again in early 2023 when the country once more approached the debt ceiling, reigniting the long-standing struggle among officials over the exact conditions for its increase.
The tensions led to the suspension of the debt ceiling—effective until 2025—and thus, by early 2024, new concerns arose with the national burden growing at an even faster rate.
In fact, earlier this year, Bank of America (BAC) estimated that the U.S. is borrowing approximately $1 trillion each quarter, and Finbold previously estimated that if the current pace continues—a highly unlikely scenario—the national debt would reach $57 trillion by 2030.
U.S. Debt Is Already 25% Greater Than Its Economy
While any projection for the future is uncertain, by early May 2024, the situation had reached a point where the total national debt of the United States was approximately $7 trillion greater than the country’s economy—expressed in gross domestic product (GDP)—in 2023.
In fact, the U.S. GDP in 2023 was approximately $27.36 trillion, while the debt in May was $34.5 trillion, indicating an increase of $11 trillion since 2020.
Similarly, if the projected growth of approximately 2.4% is met and the debt remains unchanged, the current burden would still be nearly $7 trillion greater than the expected economy for the entire year 2024.
Moreover, if the debt continues to grow at the current rate, it will be approximately $9 trillion greater than the U.S. GDP—around $37 trillion compared to approximately $28 trillion.
This issue is particularly concerning given that the last debt ceiling before the suspension was set just above $31 trillion—$3 trillion less than the burden at the time of publication—and the suspension is only scheduled to last until 2025.
Is the U.S. on the Path to Default in 2025?
The fact that the U.S. budget is projected to cover a deficit of nearly $2 trillion also indicates that the national debt is not set to decrease by the New Year.
On the other hand, historical examples show that despite fierce rhetoric, U.S. politicians have never had trouble raising the ceiling—although usually at the expense of the middle and lower classes—meaning the danger of default remains low.
Finally, some argue that although the debt is at unprecedented levels, it is far from being a cause for concern. In fact, although approaches like Modern Monetary Theory (MMT) are generally dismissed, there are indications—though not confirmations—that at least some of its aspects have been accepted.
An example of a statement hinting at such a situation is the infamous 2023 comment by Fed’s Kashkari that ‘there is an infinite amount of cash at the Federal Reserve.’