Should We Worry About the U.S. Debt?

Asked the key five presidential race issues, journalists Peter Baker (NY Times) and Susan Glasser (New Yorker Magazine) did not include the U.S. debt. Former Wall Street Journal Washington Bureau chief Gerald Seib would have disagreed.

In “Will Debt Sink the American Empire,” he told us why.

The U.S. Debt

In one way President Biden and Donald Trump are similar. Both added close to $7 trillion to the national debt. By contrast, the budget was in surplus during the late 1990s. We should note that a surplus just means government revenue exceeded its spending. As a result, it did not add to the debt. Now though, with interest rates up, so too is the cost of borrowing.

To explain his concern, Mr. Seib cited historian Niall Ferguson. Like Habsburg Spain, ancien régime France, the Ottoman and British Empires, U.S. interest expense at $892 billion, tops defense spending. Knowing that each of those doomed empires spent and borrowed excessively, he worries the U.S. could be next.

You can see that our debt-to-GDP ratio could cross the 100% mark before next year:

Our Bottom Line: Debt-to-GDP ratios

Starting with a definition, the U.S.debt is the total amount the U.S. has borrowed. Typically, for a high income nation, when spending exceeds revenue, they have to borrow. Unlike you and me, they borrow by selling bonds. Investors want to buy those bonds because of the interest they earn. And now, with interest rates up, they earn more. However, since the borrower has to pay more, their debt shoots up further.

As a result, we have debt to GDP ratios rising as debt grows faster than GDP:

Yes, Alexander Hamilton told us that, “A national debt, if it is not excessive, to us will be a national blessing.” Is it now?

My sources and more: Thanks to Slate Money for alerting me to the Seib Debt article.